Brexit Watch – from the “European” Perspective

3 October 2016


Brexit Watch – from the “European” Perspective


Britain in the eyes of a Frenchman

You don’t have to be a Rocket Scientist to identify that the English are different.

As an Englishman I am the first to admit it. We simply don’t walk, talk, interact, consume, love, hate, or think like “Europeans”.

As a nation, our focus and our heart is not and has never been “European”. Historically our power and influence in the world was not made, or for that matter maintained in Europe, but derived from pillage, plunder, colonialism, and a Naval force that was second to none. Many things have changed especially in the last 50 years – we no longer have an Empire, we have tempered (somewhat) our tendency to pillage and plunder, and we no longer dominate the seas. All that has remained consistent is that we are still not in any sense of the word “European”.

It is fair to say that the rest of Europe don’t always get this. Many look at the English with bemusement and a wry shake of the head. One European who did “get” the English was the French President Charles De Gaulle.

In 1963 De Gaulle commented (at the time he was exercising France’s veto effectively rejecting the UK’s application to join the European Economic Community):

“England in effect is insular. She is maritime. She is linked through he interactions, her market and her supply lines to the most diverse and often the most distant countries; she has, in all her doings, very marked and very original habits and traditions.”

In other words, it isn’t just the English Channel that separates the United Kingdom from the rest of mainland Europe. In the simplest of terms British DNA has never been “European”.


So what exactly does being European now mean – has Europe lost its Mojo?

This month has seen a number of important meetings for those countries who for the time being remain in the European Union. Without the UK in attendance, the rest of Europe was able to reflect and consider the future of Europe.

Before the June referendum that resulted in a resounding British vote to leave, the threat of Brexit was considered by most “Europeans” to be the most serious crisis facing the European Union since the collapse of the Greek economy.

Now most commentators are not sure. Many consider that the malaise and divisions within the Europe run much deeper and are much more fundamental to the future of the European Union than Brexit. Some even consider that there is a crisis of legitimacy in Europe that cannot be easily fixed. Can we even say what being “European” means for the rest of Europe now?

Europe – as a project – has been wounded by Brexit. Whether that wound is terminal only time will tell. Europe is in turmoil and the question is can it ever regain its mojo?


Germany and France – the beating heart of the European project

Look closely at Europe and you discover that its beating heart – the cohesive energy and flow of life force that keeps it together – is comprised of the German economic power house together with the French federalist ideology. In the words of another former French President, Valery Giscard d’Estaing, “Europe cannot move ahead without the Franco-German Engine”

The problem for Europe is that the relationship between Germany and France is no longer as harmonious as it once was because both Angela Merkel and Francois Hollande face serious challenges at home.

Germany is fast approaching an election year. For Angela Merkel that election may prove to be her own personal Waterloo. Merkel’s refugee policy has split Germany and caused the rise of a significant right wing movement in the country the like of which has not been seen since the rise of Hitler and the National Socialist Party in 1933.

For Francois Hollande, the position appears equally precarious. The French President’s authority at home has seriously been weakened by a succession of terrorist attacks, and he has faced a barrage of criticism for failing to both modernise and revitalise the French economy. At the time of writing this blog entry it is not clear whether Francois Hollande will stand for re-election.

France has also seen the rise of a right wing anti-migrant movement in the form of Marine Le Pen’s National Front. While the National Front – which promises a referendum on membership of the EU – is unlikely to secure enough votes to put Le Pen into the Elysee Palace, the rise of the party is an effective barometer of French opinion on Europe.

In recent times the European Union has struggled with many issues (and has struggled to find solutions to all of those issues). The Eurozone crisis could still topple the EU, and while the Eurozone is showing signs of a fragile recovery the fear of economic collapse still exists. For many German and French citizens enough is enough.


Italy, Portugal, and Greece – the struggles continue

Italy continues to struggle with a banking crisis, an extensive portfolio of non-performing loans, and an economy that refuses to kick-start. Portugal may well need a second bailout package, and the level of Greek debt is still equivalent to an amount greater than 170% of its economic output. Taken together, the problems of Italy, Portugal, and Italy have never been solved by the European Union. They have simply been parked or placed in the “to-do” column. The question is whether Germany and France, as the powerhouse of Europe, now have the economic stamina or willpower to deal with them.


The Club Med/Great North Europe divide

The “Club Med” countries in the European Union comprise of Italy, Portugal, Malta, Cyprus, Greece and France. On September 9th the leaders of the Club Med countries met in Athens to discuss the serious issues they have all suffered as a result of the austerity policies pursued and to a great degree enforced on them as member states within the Euro Zone by the European Union – namely years of low growth and high levels of unemployment.

The Italian Prime Minister, Matteo Renzi summarised the mood of the Club Med group. What they want most of all is a relaxation of the tight EU fiscal rules particularly in respect of deficit targets.

Such a relaxation finds little favour with countries in the North of the European Union (namely Germany, The Netherlands, and Finland) who have managed their own economic affairs in a much more prudent and restrained way. The message is clear. Citizens and politicians of those countries don’t want to pay anything more for the economic mistakes and mismanagement of the Club Med Group.


The great East-West Divide and the problem of refugees

Look to the eastern part of the European Union and you find what are referred to as the Visegrad countries. The Visegrad countries comprise of Hungary, The Czech Republic, Poland, and Slovakia.

In respect of the refugee crisis, the Visegrad countries have defied Brussels attempts to get them to share the burden of housing refugees. The issue of refugees could on its own unhinge the rest of the Europe if a solution is not found. Economic and political migrants continue to enter Europe through Turkey and thousands continue to attempt the journey from Libya. With no policy or plan the arguments over refugee quotas will continue to threaten the harmony of the European Union.


More divided than together

These issues alone indicate that the European Union continues to be a fragile entity. Brexit wounded the EU but in isolation that wound is unlikely to be fatal. Other issues cannot be brushed aside and ensure that the waters those who remain in the European Union have to chart continue to be hazardous.


Closing thoughts – time to consider your investing strategies

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