Tuesday, 18 April 2017

The UK is not without options

Today, Theresa May called for a snap election. I'll get into why in a later post, but I want to first revisit something I commonly hear with regards to the EU Brexit negotiations themselves, that the UK are without options, that they should be grateful for whatever the EU grants. I want to conclusively hammer this narrative, because it is absolutely incorrect.

There are in fact several ways to play this hand, from the perspective of the UK. First off, we're a net importer relative to the EU, especially so wrt Germany, who under the assumption of WTO 10% tariffs would suffer twice the impact of that of the UK. so while we no doubt would suffer under worst-case scenarios WTO tariff introduction here, our retaliation strikes right at the heart of Europe.

Next - Ireland already appear in trouble wrt their function as, effectively, a corporate tax haven. However, there would be very little the EU could do to retaliate wrt the United Kingdom slashing corporate tax rates and capital gains - arguably, the EU has rather a difficult situation here, and even moreso as they move towards fiscal integration (it will happen!)

Third - the block in this particular regard (the EU) does not actually tend to work as one cohesive unit. That's why trade deals take such a long time to hammer out, for instance. Rumania want explicit language protecting their interests, Poland theirs, and Germany just the same. To solve this conundrum, Germany will need to drive through their effective leadership - but they're somewhat stuck in this regard, as pushing too hard and Europeans' opinion of this German leadership will plummet. They can't be too authoritarian in their approach.

Fourth - nothing has been resolved in terms of internal tension within the EU. The Euro still act entirely in German (/the North's) favour, and the South of Europe suffers as a result - South European monetary policy has historically been more dovish, compared to Northern. Furthermore, banking systems throughout the EU are in dire straits, the Italian especially, but the Greek isn't faring much better. and on top of it all, we have Deutsche Bank still in a very undesirable position. So, throw in a bit of playing the waiting game, because these stress points will need addressing sooner rather than later.

Additionally, wrt the EU:

"The tax would only impact financial transactions between financial institutions charging 0.1% against the exchange of shares and bonds and 0.01% across derivative contracts. According to the European Commission it could raise €57 billion every year"

Can you honestly see finance sit idly by, as the EU add €57bn of additional taxation?

"The proposal supported by the eleven EU member states, was approved in the European Parliament in December 2012,[84] and by the Council of the European Union in January 2013.[85][86][87][88] The formal agreement on the details of the EU FTT still need to be decided upon and approved by the European Parliament.[89][90]"

so no, it's not off the table at all.


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