Thursday, June 30, 2016

Why You Can’t Dismiss the Populism Behind the Brexit - TIME

Posted: 28 Jun 2016 11:54 AM PDT

Foroohar is an assistant managing editor at TIME and the magazine’s economics columnist. She’s the author of Makers and Takers: The Rise of Finance and the Fall of American Business.
I’m really, really sad about Brexit. I spent 10 years living in England, working as a foreign correspondent throughout Europe and the Middle East. My two kids were born in the U.K. We traveled widely and freely and easily throughout Europe. Covering the start of the euro, I felt like I was a part of something amazing — a new kind of globalization that wasn’t being pushed by corporations, but rather invented by a culturally distinct group of people, people who spent the last several hundred years fighting each other, but who nonetheless came together because they all believed in civil society, democracy, freedom, and taking care of one another with a proper social safety net.

So, yes, it’s a blow to think that the U.K. no longer wants to be a part of that experiment. I think it was the wrong decision, economically and politically. But honestly, it’s even more disturbing to me that many European and American leaders, policy “experts” and pundits still don’t get that democracy is democracy, even when you don’t like it. The more you dismiss the “Leave” contingent as ignorant racists who have no idea what’s good for them, the more you’ll get the kind of populism that we’re seeing not just in the U.K., but here in the U.S. too. I couldn’t agree more with this wonderful Matt Taibbi piece in Rolling Stone, with a title that summed it up as well as I’ve seen: “The Reaction To Brexit Is the Reason Brexit Happened.”
The notion that 90% of the population of the U.S. and the U.K. need Very Smart People to make sure they don’t get into trouble by thinking and feeling the wrong things is, quite frankly, B.S. I cover and am close with many of those VSPs, and I can tell you, they make mistakes. Lots of them. Big ones. Remember the financial crisis? That was owed to a system that was invented by elites, and the fact that the cleanup was largely and imperfectly organized by a small and insular group of elites is why we have a bifurcated recovery that has favored Wall Street over Main Street. It’s just so unbelievably arrogant to think that the Leave vote should be tossed out because the VSPs have decided they didn’t like the result.
By the way, this arrogance plays out everywhere, all the time. One of the reasons that we have chaos in the Middle East right now is that for many years, the U.S. and many European nations supported regimes deemed to be appropriate by VSPs, while suppressing those that were more popular amongst local populations but considered less acceptable by elites. The result: truly terrifying terrorists groups like ISIS exploiting the underlying anger of populations unable to make their own electoral mistakes, and move on from them in a less destructive way.
I worry about how the arrogance of the VSPs will play out in this election cycle. It’s not O.K. to just dismiss ideas because we find them offensive. We need to try to understand what’s causing people to have them. (In the case of both Brexit and Donald Trump, it’s a split economy based on rules that need to be tweaked to better ensure shared, sustainable economic growth.) On this note, I’m really glad to see Hillary Clinton on the platform with Elizabeth Warren, someone who, whether you like her or not, certainly understands how to speak to the public in a way that’s straight-forward, honest, and not condescending. Clinton will need to make sure she’s doing that clearly, and effectively, going forward.

Wednesday, June 29, 2016

Surgeons' letter sums up Brexit - Independent

Brexit, a political movement nurtured by primarily one man for nearly 20 years, has affected the entire country.
While some have been searching for the reason as to why this happened (some concluding mad cow disease) others have looked to how this can be avoided in the future.
Maybe gambling the economy, the state of the union and your job on a plebiscite shouldn't be without serious consequences?
This is the gist of the argument a Times letter writer has contended, comparing the repercussions of politicians to those of surgeons.
It reads:
Sir, 
If a surgeon performed an operation on a patient without fully informed consent, knowingly used inaccurate data about the likely outcome, and then had no idea how to proceed after the initial incision, they would be struck off the medical register and not allowed to practise further. 
Isn't it time politicians too were held properly accountable for their individual actions?
-Tony Weetman, Emeritus professor of medicine, Sheffield


To be completely fair to the man, Cameron has resigned, so far the only major player to do so.
We're still waiting on any consequences for all the others.

Discussing the Australian federal election on July 2 ( Saturday), 2016 - JKHC-NEWS(2)

       Discussing the Australian federal election on July 2
                                     ( Saturday ), 2016

It is again time for Australians to vote in a federal election. It has been a rather frequent affair during the past 5 years. This reflects on the less than ideal political situation in the Australian political scene without a clear majority governing political party. To begin with there is no obvious better choice in terms of a better governing political team on offer.
Nevertheless, voters have to make a pick somehow.

What is a good government ? In my humble opinion, it is one that is fair according to generally accepted standards ( as set out in the United Nations Declaration on Human Rights – see my essay on Universal Standards here :-   http://jkhcforum.blogspot.com.au/2015/12/universal-standards-brief-visit-by-jkhc.html ) and reasonably efficient. In other words, it must not demand from the people more sacrifice than necessary for the achievement of the common goals within a democratic framework. ( See “ Social Contract “ in Wikipedia here :-  https://en.wikipedia.org/wiki/The_Social_Contract )

To allow the reader to assess whether or not my comments are biased in my own favour  I must declare my own background. I am a retiree with no political affiliation and mainly live on interest income from my own savings and investment income from shares in public companies. I am not on any kind of government subsidies or welfare except Medicare benefits. Having said that we can move on to the main discussion.


(A) Principles relating to public finance or government spending

To assess the aptitude or appropriateness of government spending voters need to learn some basic principles relating to public expenditure. The following is extracted from my own economic essay :- “ 2008 Economic & Financial Tsunami – An Overview for the Lay Person “ in chapter (6) at page 29. ( my full essay can be seen at this link :-  https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxqa2hjbGlmZXN0eWxlfGd4OjY4MWY3YTM5ZDFmY2NmZTU  )

  ( 6 ) Basic working principles of public or government finance
Governments spend a lot of taxpayers' money in recurrent expenses as well as capital or infrastructure projects. The government budget is of direct relevance to our financial position and that of society as a whole. Citizens are very often asked to pay their share of these spending through the increase of personal income tax or other indirect taxes such as sales tax or GST ( goods & services tax ). Incorrect ways of spending public funds will both do great damages to the economy and will result in great injustice.
Just as in accounting there are some basic philosophies involved in this specialized branch of economics. Let us have a brief look a few more important ones. Before doing so, however, we need to learn about some special characteristics of public finance. The concepts of external economies and diseconomies very often come up in connection with government spending because the government is responsible for many branches of social services. Here the terms economies and diseconomies refer the conditions and effects and not systems as such. A particular economic activity is said to produce an external economy when it can create benefits for other people who are not the intended target of that activity. Take the radio airwave for example. If the government sets up a radio station for its military service everyone else can also enjoy its programs without extra costs on the government. Again, if the government constructs a freeway to make it more convenient for citizens in the outlying areas to get into the city the freeway will also benefit those living along its route. The improved convenience will also lead to the increase in the value of properties in its vicinity. These are extra benefits to be reaped by society. On the other hand, some economic activities can create external diseconomies. For example, an electric power station that runs on coal will give rise to air pollution and will adversely affect the health of citizens living in its vicinity. Besides the moral issue the costs of the resultant long-term health care problems will be ultimately borne by society while the electric company simply makes the profit without bearing the full social costs. Nowadays, social accounting is becoming popular in some countries to find out the ultimate costs of to society. The fundamental lessons to be learned on these special characteristics of public projects are three fold. First, the decision to go ahead with such projects must be based not just on immediate or direct costs and benefits but on all external economies and diseconomies. Secondly, many projects with such special characteristics are very often more suited to public sector management because profit is not the sole consideration for the government. Thirdly, if it is decided that it is more efficient for private corporations to handle such projects strict control must be in place to ensure that costs of external diseconomies if any must be paid for by the private enterprise undertaking the project. Otherwise, corporate greed will again lead to some social costs being passed on by the private enterprise to the taxpayer. However, it must also be borne in mind that others things being equal first consideration should be given to allowing the private sector to take up the project under a market oriented economy to give priority to economic efficiency. The existing size of the public sector must also be considered so as to keep down government's share in the total economy to a reasonable proportion such as below 20 % of GDP ( gross domestic product ).
Very often there is some dilemma facing government in connection with the operation of many public services such as health care and social welfare. How much should the government charge citizens for using such services.  If they are completely free then such services may be abused by those who may not really need them. Thus, it will lead to a waste of precious economic resources. On the other hand, if the charges are too expensive it will be unfair to the underprivileged sector of society who may not be able to afford them thus creating a burden on the poor. Due to the special characteristics of such essential services the strict rules of the price system ( or money vote and by supply and demand ) under capitalism cannot work properly. Here again we encounter situations that cannot be satisfactorily handled by a strict application of the price system ( price to be determined freely by supply and demand ) which is considered to be a sacred institution under capitalism. So, economists have come up with two useful principles that are quite handy in such tricky situations. They are called the ability to pay and benefits received principles in public finance. These two principles are not mutually exclusive but can be used in a certain mix to achieve the optimum balance on fairness and efficient use of economic resources.
The “ ability to pay “ principle requires that due consideration must be given to any hardship that may affect the user's ability to pay for the essential services while the “ benefits received “ principles specifies that users have the basic obligation to pay for any services they receive unless special circumstances warrant otherwise. Applying the above principles to use of the emergency ward of public hospitals an appropriate way to
strike a balance between fairness and efficient use of the emergency facilities would be to charge a fee that will deter non-urgent users ( benefits received principle ) but the charge can be waived by the health authority or borne by the social welfare department in case of citizens already on the welfare system ( ability to pay principle ).
The government's budget can be used very effectively to achieve many economic goals such as creating employment ( through fiscal spending ), redistribution of income on a more equitable basis ( through taxation ), keeping down the inflation rate by a surplus budget ( withdrawing more resources from the economy than putting back into it ) and stimulating consumption in the private sector through a deficit budget ( injecting more into the economy than withdrawing from it ). There is usually no serious problem with a surplus budget except public criticism against the government for not taking better care of the underprivileged sector. However, if a surplus budget is called for to dampen an over heated economy by withdrawing resources from it the foregoing criticism will not stand. On the other hand, there can be a lot of controversy over a deficit budget 
( spending more than the amount of revenue raised during a financial year ). This is because a deficit must be properly funded. There are basically three way of funding a budget deficit. First, the government can simply print more money. This is the worst and most irresponsible way because putting more money into the economy without a corresponding increase in the production of goods and services will simply lead to a higher price inflation which is will lead to hardship for the fixed income earners and reduce the competitive edge of the country as compared to other trading partners. Unfortunately, irresponsible and dictatorial governments such as Zimbabwe are doing exactly that. It had led to a hyper-inflation rate of over 231,000,000% in Zimbabwe in July 2008 as compared to the previous year. The same tragic scenario also occurred in Germany after the First World War. The second way is to raise more taxes which will be a direct burden on the taxpayer and will be unpopular. The third way is to borrow from its citizens and outsiders ( other countries and international corporations ) by issuing government bonds ( national debt ).
There are some particularly tricky problems connected with the question of national debts. First and foremost, borrowing too much will subject the government to the influence of the creditors especially if these are foreign countries or international financing giant corporations. There is always the political consideration that these creditors can put undue pressure on the government to carry out policies to the advantage of the creditors. In extreme cases of excessive national debt the sovereignty of the national may be threatened. In the case of excessive national debt owed to its own citizens there will be a problem of adversely affecting a fair distribution of income. Those citizens who are most likely to buy government bonds are the rich people. Interest payment on bonds will ultimately be financed from taxation. This means that the rich will become richer at the expense of the poor. While only the rich receive interest payment on the government bonds they hold as investment every citizen ( even the less well off ) must be bear the tax burden in respect of that portion raised for the purpose of financing government bond interest payments. The rich are getting richer while the poor have less to spend due to a higher tax burden resulting from the need to pay interest on government bonds.
Then there is the problem with the intergeneration transfer of national debt burden. As many types of government bonds have very long maturity periods this will imply that a substantial amount of money raised by government bonds during the period of their issue will not be due for repayment until decades into the future. As mentioned above in section (4) in connection with the working of the financial market some US treasury bonds have up to 99 years before they are due for repayment. This created the situation of the national debt burden being transferred to future generations while the borrowed funds have been used in the current generation. Therefore, to be fair to future taxpayers long-term government bonds should only be issued to finance long-term infrastructure capital projects such as roads and bridges which have enduring benefits that will extend to future generations. This is the accounting principle of matching capital expenditure ( capital assets ) with long term loans ( or long term liability ) which is also applicable in social accounting to ensure fairness to all citizens. This treatment also reflects the benefits received principle in public finance. By the same token, short term government bonds should be issued to cover a short fall in revenue in a deficit budget for the increased current expenses of a revenue nature.
It will be recalled that there are four major economic goals for the government to achieve. To refresh the readers' memory, these are full employment, low inflation, healthy economic growth ( i.e. increase in living standards over time ) and a fair distribution of national income ( a major proportion of the population being in the average income and wealth bracket ). There is now an urgent fifth goal of environmental protection. The most ideal conditions for the the economy is full employment with an acceptably low rate of inflation together with a healthy rate of growth, little disparity between the rich and poor plus a good and sustainable environment. Unfortunately, some of these economic objectives are not totally compatible. For example, an increase in fiscal spending can create more employment but it will also lead to a higher rate of inflation. Similarly, to achieve a higher rate of growth in a shorter period of time involves higher levels of spending ( both in the public and private sectors ) that will lead to a higher rate of inflation. Of course, the ideal way to achieve a higher rate of economic growth without too much additional spending is to increase personal productivity ( working more efficiently ). Then, a more progressive rate of taxation will lead to a more equitable distribution of national income but it may sometimes reduce the incentive for more personal efforts. Political considerations will also come into play. For example, the best way for the world as a whole to achieve the most efficient use of resources is total free trade to promote competition and higher productivity or efficiency. However, trade unions in many countries where a democratic political system is at work will dictate minimum wage levels and working conditions which can make the work force of that country less competitive. The result is that trade unions in that country will call for more protection ( such as quotas or import tariff ) against cheap labour producer countries. The conflict arises because of different working and remuneration standards between the advanced and developing countries. This is a major problem confronting members of the WTO ( World Trade Organisation ) which was formed to promote free trade on a global basis ( or more popularly known as Globalisation ). A skilful and fine balance must be struck by a capable government to achieve reasonable progress in all five economic goals the latest one of which is environmental protection. ( The 5 objectives for economic policies are (1) Economic growth or betterment of living standards. (2) A fair and equitable distribution of national income and resources. (3) Full employment to give a fair go for everyone (4) Price stability with a tolerable rate of inflation to protect against erosion of spending power for the majority working ( fixed income ) class as well as retirees and the underprivileged class. (5) Environmental protection to ensure the sustainability for our environment which we must protect for our future generations. These economic goals very often works against one another so that a healthy balance must be maintained in the course of achieving them. )
Just one word of reminder regarding government spending in relation to the capitalistic rationale of “ big economy, small government “. In case it is necessary to support a declining economy this can be done fiscally by either increasing public spending or a reduction in taxes. Everything being equal the above capitalistic rationale warrants that cutting taxes should be given priority because the private section is supposed to be more efficient in deciding what to do with the extra money resulting from a tax cut. The public sector, on the other hand, is usually more wasteful because the government does not need to make a profit on its operations. Furthermore, a freedom of choice for the citizens to spend the extra cash from the tax cut in their own chosen way is consistent with the democratic principle.
Having acquainted themselves with the basic working principles of public finance the readers will now be more confident in assessing government policies proposed or taken to combat the E&F T 2008. Hopefully, everyone will become an informed citizen to have a say in these public policies through the vote which all citizens of a democratic country posses to make a difference towards the recovery process. “
Armed with the above basic knowledge to assess the proposals put forward by various candidates of the upcoming election let us try to be an informed voter and hopefully, not to follow the chaotic path of the Brexit referendum.

(B) General characteristics of the political parties running for government in this election

(a)        The incumbent Coalition government between the Liberal Party and the National Party  

Their historical political philosophy is mainly market oriented or capitalistic generally following the former UK iron lady Prime Minister - Margaret Thatcher ( Thatcherism ) way of thinking. She was former Australian PM, John Howard’s idol.

This philosophy is generally pro-business and pro middle class. It holds a conservative attitude towards public spending and tries to shy away from welfare as far as possible. The individual is supposed to work hard to take care of his or her own problems as far as possible. Of course, they not as yet dare to challenge the existing welfare arrangements though constant reviews are in place to tighten them. For example, they have declared a new policy of auditing pensioners’ assets to see if benefits have been over paid previously.

Their election campaign centres on :- (1) A viable economic plan to get out of the huge budget deficit (2) A safe border against illegal immigrants (3) A stable government (4) No changes to Medicare and education policy.

(b)        The Labour Party

Traditionally, its policy is to protect rights and welfare of the working class often willing to go into deficit spending to achieve their goals. It is socialistic in political philosophy meaning that resources should be fairly or evenly distributed even though the policies they adopt to achieve this end may discourage investment in turn adversely affect employment.

As the party needs the strong support from trade unions ( organized working class ) the party very often give favourable treatment to and sometimes even submit to questionable trade union demands. For example, in the latest Victorian fire fighters trade dispute the Victorian Labour government forced through pay and other reforms that favoured the trade union. So much so that State government’s minister resigned in protest of the manifestly unfair reforms. Although the unfair reforms had though passed through State government but verbal and even physical threats are still being dished out by various parties involved in the dispute.

Their election campaign centres on :- (1) Opposing tax reduction for businesses and cuts to medical and family benefits and university fees (2) protect workers’ right and benefits such as retaining weekend wage rates (3) No privatisation of Medicare (4) No reduction in family benefits or increases to university tuition fees.

(c) Green Party

The main party goal is to protect the environment. It also emphasises Australia’s moral obligation towards refugees and  champions the basic rights of the LGBT community. For example, it supports same sex marriage. They are also against globalisation which inevitably harms the environment.

Their campaign centres on :- (1) Protecting the environment such as conservation of the Great Barrier Reef (2) Supports same sex marriage (3) Abolition of all off-shore refugee detention camps.

(d) The independents

These cannot form a government in their own right but are very important because of the very close election resulting in a hung parliament ( no clear majority votes won by any single political party ). The independents and once the Green Party were invited to form a coalition government after a hung parliament was in place due to a very close election.

These independents have their own political calls particular to their constituents. Sometimes, they were able to trade their unique power balancing position to bargain for the realisation of their political goals. They were dubbed the “ king makers “ because of their unique power balancing position. This is clearly unhealthy but it happens at a close election.


(C) What influences my choice in this election

(a)        To start with I do not like the way the LiberaL/National Party Coalition forced this election by a double dissolution motion ( the double rejection by the Senate of their  proposed legislation for the establishment of the ABCC – Australian Building & Construction Commission which is not even in their election campaign anymore ). This is a dirty trip meant to force the law makers into accepting the Coalition’s proposal. The Coalition worked within the law in using the Double Dissolution mechanism but this cannot disguise the blackmail nature of the move. Blackmailing the people’s representatives is an insult to the people and democracy. It is too high handed and so causing the Coalition to lose their moral foothold. Having said that the reality of the huge budget deficit leaves me no choice but to opt for a more prudent fiscal management approach of the ruling Coalition. I will definitely settle the score with Liberal not only on the Double Dissolution but other issues such as the refugee policy as well in the next election. As regards the choice of the Coalition’s cut in spending I do agree that it reflects on the fact that Malcolm Turnbull and his team is slightly out of touch with the common people.

(b)        Under the current adverse world economic climate of China’s recession and now the Brexit turmoil the economy is of top priority. I am not saying that the Coalition is proposing a brilliant economic plan. It is nevertheless a more prudent or conservative one though at the expense of some slight socially undesirable measures on welfare. Labour on the other hand is running 4 years of higher deficits followed by the return to budget balance in the fifth year. To me, this will not be possible unless with increase in taxation or borrowing. We must not forget that the huge black hole in our budget deficit is mainly due to Labour’s imprudent spending. In particular, Kevin Rudd ‘s crazy spending spree set a very bad example on fiscal prudence. I can still vividly remember Rudd’s failed national heating insulation scheme of insulating one million homes in a year which could never be achieved. That led to the death of 4 apprentices who were not well trained enough to handle the job plus billions of dollars down the drain. The scheme was just a wild shot by an ambitious Rudd to become the only government in the free world to be saved from economic recession. To me, some slight recession is not intolerable during the 2008 GFC and there was no need to spend money for spending’s own sake).

(c)         With the Green Party which is on moral high ground most of the time their goals are not really that practical for Australia as a whole especially under the current economic climate.  However, they could be decisive should there be a hung parliament. In my humble opinion they may serve the country better while in opposition as a safe guard against excesses in the incumbent government with regard to the government’s policies.

(d)        The most important external issues that will influence my vote in this election are :- (1) China’s recession leading to another possible world economic down turn (2) Brexit leading to another world financial turmoil (3) General world movement of political opinions to the far right leading to anti-establishment protest votes in many countries.


(D) My predictions of the election results

Originally, I predicted a hung parliament with either the ruling Coalition with some independent forming a government. Less likely, a hung parliament with Labour and the Greens forming a ruling government but now with the Brexit, the Victorian fire fights dispute and the more recently conviction of the former NSW Labour member of parliament Obeid in his corruption case the Ruling Coalition may win out right though with a narrow majority. This is my bold prediction with all the available facts and my own gut feeling. We will get our answer in 3 to 4 days.

Please make your own informed choice in your voting. You must exercise your democratic right to vote and do your duty as an Australian citizen. If you hesitate to exercise your voting right just think of the thousands of freedom loving citizens worldwide who have suffered and even died to try to get the right to vote. Do not waste your precious vote. Just stand up and be counted as a proud Australian citizen.

JKHC

June 29 ( Wednesday ), 2016.





Standard & Poor’s Downgrades Britain’s Credit After Brexit - TIME Business

Posted: 27 Jun 2016 11:23 AM PDT

(LONDON)— Standard & Poor’s has stripped the United Kingdom of its top credit grade in the wake of the vote to leave the European Union.
The rating agency downgraded the country’s sovereign rating by two notches, from AAA to AA, saying the vote is a “seminal event” that “will lead to a less predictable, stable and effective policy framework in the U.K.”
It is also keeping a negative outlook on the rating, which means it could downgrade the country further.
It added in a report published Monday that the outlook reflects the risk to the economy and public finances, as well as the pound’s role as an international reserve currency.
It also cited “risks to the constitutional and economic integrity of the U.K.” as Scotland’s strong vote to remain in the EU could raise the prospect of another referendum on Scottish independence.

Asian Stocks Start to Shake off ‘Brexit’ Worries - TIME


Posted: 28 Jun 2016 12:41 AM PDT

(HONG KONG) — Most Asian stock benchmarks rebounded from early losses Tuesday as investors started shaking off the jitters from Britain’s vote to quit the European Union and its messy aftermath.
Global financial markets have been roiled by the result of last week’s vote, which also sent the pound to its lowest level in three decades. The turmoil and uncertainty over the decision to leave the EU prompted ratings agencies Standard & Poor’s and Fitch on Monday to strip the UK of its top-shelf credit rating.
Asian markets were broadly lower in early trading but reversed some of their losses later on optimism for more government support policies. Japan’s Prime Minister Shinzo Abe instructed officials to take steps to reassure markets, the Kyodo news agency reported, while South Korea’s government unveiled a 20 trillion won ($17 billion) stimulus package and backup budget for big infrastructure projects.

Japan’s benchmark Nikkei 225 index climbed 0.6 percent to 15,399.79 while South Korea’s Kospi added 0.4 percent to 1,934.23. The Shanghai Composite Index in mainland China edged up 0.1 percent to 2,898.35 and Australia’s S&P/ASX 200 fell 0.5 percent to 5,113.20. Benchmarks in Taiwan, Singapore, Thailand and Indonesia also rose.
Hong Kong’s Hang Seng Index fell 0.8 percent to 20,077.75, dragged down by companies with high exposure to Britain’s economy. One of the index’s biggest losers was billionaire tycoon’s Li Ka-shing’s CK Hutchison Holdings, which has British retail, ports and telecom investments and fell 2.5 percent.
“When you pull a spring, after you let it go it oscillates up and down for a little while and that’s still what we’re seeing in the markets,” said Andrew Sullivan, a sales trader at Haitong Securities. “This is nothing about individual companies per se, this is about the effect of forex on their earnings,” he said.
Britons voted last Thursday to leave the EU over concerns including immigration and regulation, an unprecedented move that stunned financial markets and triggered waves of selling on Friday and Monday.
The results sent the British pound sliding. On Monday it fell another 3.5 percent to hit a new 31-year low of $1.3199.
The yen also surged as investors fled risky assets in favor of the currency, which is considered a haven and is hovering near its strongest level in two years. The dollar rose to 102.04 yen from 101.90 in late trade Monday. The euro strengthened to $1.1055 from $1.1020.
Benchmark U.S. crude rebounded 76 cents to $47.09 a barrel in electronic trading on the New York Mercantile Exchange. The contract slid $1.31, or 2.7 percent, to settle at $46.33 a barrel on Monday. Brent crude, used to price international oils, rose 77 cents to $47.93 a barrel in London.
On Wall Street, the Dow Jones industrial average lost 1.5 percent to close at 17,140.24. The S&P 500 index slid 1.8 percent to finish at 2,000.54 and the Nasdaq composite fell 2.4 percent to 4,594.44.

Tuesday, June 28, 2016

Referendum to leave EU had been ignored before - Independent

There are a number of examples of referendums in Europe which have been ignored by the government of the day.
The most recent and striking example was in July last year when the Greek people voted by about 61 per cent to 39 per cent to reject harsh austerity policies sought by the EU and other global institutions in exchange for a multi-billion-pound bailout.
Despite the vote, the left-wing government in Athens, fearing the country’s banks and economy would collapse, agreed shortly afterwards to even tougher austerity measures.

In 2008, Ireland threw the EU into chaos when it became the only country to hold a referendum on the Lisbon Treaty – and voters rejected it by a majority of 53 per cent. In order for the treaty to become law, it had to be ratified by all member states.
Amid concern that attempts to streamline and formalise the workings of the EU were being held up by one relatively small member state, Irish and EU politicians urged people to think again. A new referendum was held in 2009 and this time 67 per cent of voters backed the treaty.
The Lisbon Treaty was designed as a replacement for the ‘Treaty establishing a Constitution for Europe’ or TCE, which was rejected in referenda in France and the Netherlands in 2005.

Some view the Lisbon Treaty as much the same kind of deal as the TCE, making it arguable that the French and Dutch governments ignored their TCE referendums.


MPs must still vote on Brexit in order to leave the EU, lawyers say
However, the Lisbon Treaty was changed in an attempt to assuage opposition. For example, it removed references to EU symbols such as the flag, anthem, motto, currency and ‘Europe Day’ that had given rise to fears that a ‘superstate’ was being created.

Monday, June 27, 2016

EU referendum winners - Guardian

The FTSE and sterling may be falling but there are some winners emerging in the fallout from the UK’s decision to leave the EU. Gold investors, hedge funds, multinational corporations and property-buying oligarchs all stand to gain.
Gold
The price of gold usually rises in times of economic crisis because bullion is seen as a safe-haven asset.
Gold dipped as low as $1,255 in the lead-up to the EU referendum, when a remain win was widely predicted. In the aftermath of the leave vote it has risen nearly six per cent in dollar terms to $1,329 as of noon on Monday.
That spells good news for gold miners, who suddenly find that every ounce they produce is worth more.
Shares in Randgold Resources has risen more than 24% from £64.38 the night before the poll to £79.80 on Monday afternoon. Fellow gold miner Fresnillo is up 21% over the same period to £15.

Any company that earns more money in dollars – or euros for that matter – than it does in pounds, stands to gain.
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This means that huge global multinational companies such as Unilever and Reckitt Benckiser are relatively protected from the turmoil. The two firms have seen stock market rises of 4.5% and 3% respectively since Thursday’s close.
Drinks companies also stand to gain, with the likes of Diageo selling huge volumes of Scotch and Guinness to overseas buyers. It has gained 5% since the vote.
Pharmaceuticals companies are among the biggest dollar earners and this is reflected in their share prices. GlaxoSmithKline has risen 5% since Thursday’s close, while AstraZeneca has climbed nearly 7%.
Pharmaceuticals are also doing well because they are seen as defensive stocks, places to put your money in times of turmoil. The economy may suffer, but people will still spend money on medicine.
The same is true of tobacco and there have been rises for British American Tobacco, up more than 4%, and Imperial Brands, 3.5% higher. They also earn a large proportion of their earnings in dollars.
Utility companies, also seen as defensive stocks, were also in demand, with National Grid 2% higher and United Utilities 1.5% higher.
Exporters and luxury brands
Much like the multinational dollar earners, smaller UK firms that rely on exports should benefit in the short-term. The weakness of the pound makes it far cheaper for other countries to buy British goods.
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In the luxury market, this helps the likes of Mulberry, as the falling pound makes posh handbags cheaper for foreign fashionistas in the near future. The upmarket brand initially watched its shares fall after the vote but recovered 3.5% on Monday against a falling market.
Private firms with an export-heavy order book should also do well, although this will nit become evident until they publish financial results over the next few years. Brompton Bicyles, which earns 80% of its money overseas, is one such firm.
However, Prof Nigel Driffield of Warwick Business School points out that exporters may find the benefit of the weak pound cancelled out in the longer term.
“Some argue that with the likely devaluation of sterling following Brexit, small UK exporters may be better able to export, not just to the EU but to the rest of the world.
“This, however, depends on whether the devaluation also increases their costs, given that 50% of the UK’s exports rely on imported components.”
Foreign oligarchs
Eurozone buyers have gained a €50,900 discount on the average London house pricefollowing the EU referendum result, according to analysis from London estate agents Stirling Ackroyd. Dollars buyers will find UK property much cheaper so the capital’s homes are looking like an even better bet for wealthy people from overseas looking to stash their cash in property.


Bernie Morris, president of UK, Europe and Middle East for Chinese property website Juwai.com, said: “Developers and estate agents ... point to Brexit as an opportunity for offshore buyers to snap up properties at bargain prices.
“If the fall in the pound persists and if local buyers continue to sit on their hands to some degree, that will create a more appealing environment for international investors.
“Based on the trend so far this month, we expect consumer inquiries on UK property to be 29.8% higher in June than they were in May.”
Hedge fund gamblers
In the short-term at least, anyone who made a multimillion pound bet on Brexit has done very well indeed. Crispin Odey, a leave supporter and hedge fund guru, took big bets that the value of UK companies and sterling would fall on the back of a vote to leave the EU.

“I think I may be the winner,” he said after apparently raking in a cool £220m thanks to Brexit.
Several major hedge funds, including Odey’s, were known to be backing Brexitbefore the vote.
Overseas investment funds
Investment trusts that help UK investors put their money into foreign assets have done well, as people shift their cash away from assets exposed to the British economy.


JP Morgan’s emerging markets, Asian and Chinese investment trusts were all on the rise on Monday, while its US small company fund performed best, up by 3.7%. There were also rises for funds such as the Templeton Emerging Markets investment trust and Middlefield Canadian Income.
Tourist hotspots
With the pound lower, the UK instantly becomes a more desirable destination for tourists who traditionally find it expensive.
That could spell short-term benefits for B&B owners, hoteliers and restaurateurs in tourist hot-spots.
However, a weaker British economy could depress domestic tourism at the same time.
Stock investors aren’t exactly banking on an uplift for the major listed hoteliers, with IHG, Premier Inn owner Whitbread and Restaurant Group all trading lower.

8 things that won't come trues as LEAVE camp promised - Independent



Just some of the truthy flights of fancy that won't be coming true any time soon include:
1. We aren't going to see a fall in immigration levels

No one in the Leave campaign actually gave any target figures, at any time, ever. Conservative MEP Dan Hannan has already said this morning that people expecting immigration to come down will be "disappointed".
2. We aren't going to have an extra £100 million a week for the NHS
Nigel Farage has already told reporters today that the Leave campaign shouldn't have claimed that.
3. We aren't going to be able to stay in the single market
No other country has a set up like that: both France and Germany have made it abundantly clearthat we are not going to be able to have our cake and eat it, ie, take advantage of the free-trade zone without contributing a single penny to it, as Leave says we will.
4. We aren't going to get our sovereignty back
Looks like we're going to get a new prime minister by the end of the autumn
Conservative party conference. It'll be a short list of two people, nominated by MPs.
This unelected leader could then theoretically hold office unopposed until a general election has to be called in three year's time.
P.S. We still have the House of Lords. So there's

5. We aren't going to save £350m a week
The Leave claim that the UK gives £350m a week to the EU has been thoroughly debunked. But it was still emblazoned on their battle bus right up until the end:

6. We won't remain a world leader in research and development
UK investment in science and universities has dried up since the recession, whereas the EU gave us £7bn in science funding alone between 2007 - 2013.
We're also going to face new barriers to collaboration with European universities and research centres.
7. We aren't going to save £2bn on energy bills
Leave promised we could end VAT on household energy bills. While that's possible, it won't save us any money in reality because we rely on imports for so much of our energy.
Because the pound has fallen, inflation will go up, which means imports and thus our domestic energy bills will cost up to 12 per cent more than they currently do.
8. We aren't going to be a 'greater' Britain
Overnight the UK economy has already slumped from the fifth largest in the world to sixth.
More than £200 billion has already been wiped from the value of the UK stock market - or put another way, 24 years' worth of UK contributions to the EU.

Sunday, June 26, 2016

US Federal Reserve " Got it " on Brexit - Bankrate.com

Central bankers, including our own at the Federal Reserve, are signaling they stand ready with the financial fire hoses, if needed, in reaction to the jolt given to global financial markets as British voters decided to leave the European Union.
Reacting to the dramatic news of the day, the Fed sought to convey a message of calm, including a pledge that it's willing to supply dollars to keep the wheels of the global economy turning.
Fed: We're ready to do whatever's needed
"The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy," the Fed said in a written statement issued before the opening bell on Wall Street.
Similarly, the Group of Seven, or G7, finance ministers and central bank officials are promising a coordinated response, as needed.
"We recognize that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability," the group said a statement. "G7 central banks have taken steps to ensure adequate liquidity and to support the functioning of markets. We stand ready to use the established liquidity instruments to that end."
Fed chief was bracing for Brexit
The electronic ink is barely dry from the most recent Federal Reserve meeting in which the U.S. central bankers decided to keep interest rates steady. Now that the outcome of the Brexit vote is known, the decision to keep interest rates unchanged seems to have been affirmed.
At the most recent policy-setting session, the official written statement from the Fed offered nothing specific about the then-looming British vote to bolt from the EU. But, when pressed on the question by a reporter at her news conference, Federal Reserve Board Chair Janet Yellen admitted that the potential negative impacts weighed heavily on the minds of the members of the Federal Open Market Committee.
"I think it's fair to say that it was one of the factors that factored into today's decisions. Clearly this is very important decision for the United Kingdom and for Europe," the Fed chief said. "It is a decision that could have consequences for economic and financial conditions in global financial markets. If it does so, it could have consequences in turn for the U.S. economic outlook that would be a factor in deciding on the appropriate path of policy."
If anything, the chances of further rate increases this year have been further diminished by the British vote.
Tough job ahead for the Fed
As the flight to bonds has been seen around the world, financial markets have taken interest rates lower. That filters down to borrowing rates, such as those tied to mortgages, giving prospective borrowers a previously unforeseen opportunity. At the same time, the fluctuations in global currencies could further complicate attempts by central bankers to keep the global economy from faltering.
President Barack Obama, who'd earlier urged U.K. voters to remain in the EU, is emphasizing continuity in the relationships between the players involved.
"The United Kingdom and the European Union will remain indispensable partners of the United States even as they begin negotiating their ongoing relationship to ensure continued stability, security and prosperity for Europe, Great Britain and Northern Ireland, and the world," the president said in a written statement.
"The people of the United Kingdom have spoken, and we respect their decision.  The special relationship between the United States and the United Kingdom is enduring, and the United Kingdom's membership in NATO remains a vital cornerstone of U.S. foreign, security, and economic policy," added Obama, who was traveling in California.
UK vote reflects familiar sentiments
While it will take some time for the winners and losers to be sorted out, one dynamic that's been seen over the past year remains in place: Similar to the rise of Bernie Sanders and Donald Trump in U.S. presidential politics, voters in the U.K. have defied the traditional establishment and many prognosticators. A years-long march toward greater globalization has been met with a populist wave.
Follow me on Twitter: @Hamrickisms.


Read more:  http://www.bankrate.com/financing/federal-reserve/the-fed-on-brexit-weve-got-this/#ixzz4CfnNN0E0
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Saturday, June 25, 2016

Here’s What Brexit Means For the Tech Industry - Fortune

Posted: 24 Jun 2016 01:38 PM PDT

Now that the citizens of the U.K. have voted to leave the European Union, it’s time to take a good look at the implications for the technology sector.
So-called Brexit will take a while to arrive. Prime minister David Cameron indicated Friday morning that he will stay on for three months before handing over to a successor, and he wants the next prime minister to begin the negotiations with the EU over the terms of the exit. That could take two years, so Britain will probably only leave in 2018.
That means years of uncertainty, with tech firms and investors unable to know for sure how regulations will evolve (or devolve) in the U.K. and, indeed, the EU.

As Stratechery’s Ben Thompson has correctly noted, the U.K. is one of the voices in Europe that has called for relatively light-touch tech regulation in the EU. Without it, Germany and France will have even stronger positions in the bloc than they currently do.
Germany and France are the countries that have taken the lead on cracking down on American tech firms, such asGoogle, over their perceived transgressions. Without British pushback, that stance is likely to gain more heft.
Then there is the issue of data and its ability to flow across borders.
You may have been following the tumultuous trajectory of EU-U.S. data transfers—the fall of the Safe Harbor agreement and the attempted rise of its replacement, Privacy Shield. Right now, U.S. multinationals and tech firms are running out of ways to legally process the data of EU citizens. This is because the EU has so far been unable to finalize an “adequacy” decision that would declare the U.S. safe as a destination for Europeans’ personal data. (Negotiators claimed a breakthrough on Friday, but champagne might be premature.)
When it leaves the EU, the U.K. will be in the same boat—again, if British companies want to process the personal data of employees and customers on the European mainland, the country will need to win an adequacy decision.
This was confirmed on Friday morning by the U.K. Information Commissioner’s Office (ICO), the country’s privacy watchdog. The ICO said the U.K.’s existing Data Protection Act, which is based on older EU rules, would remain in force. However, the upcoming EU privacy reforms—the much tougher General Data Protection Regulation—will not apply to the U.K. directly.
This means the U.K. will have to reform its privacy laws in line with the new EU rules, even though it is leaving, or face big barriers to cross-border data flows. “Having clear laws with safeguards in place is more important than ever given the growing digital economy, and we will be speaking to government to present our view that reform of the U.K. law remains necessary,” the ICO said.
Foreign tech firms may not be so keen on the details of the new EU rules—they clear the way for massive fines for privacy violations, and allow people to opt out of being profiled online—but they do at least welcome the uniformity that they promise. The EU currently has a patchwork of privacy laws, and the General Data Protection Regulation is supposed to provide harmonization. So tech firms, too, will likely want to see the U.K. align its laws with the EU on this front.
However, that might not be enough to win an adequacy decision. The big problem here is surveillance.
The main reason Safe Harbor fell was the mass surveillance policies of the U.S. The U.K. also has mass surveillance programs that affect other countries (and it is currently trying to shore up the underlying legislation), but while it is part of the EU, the U.K.’s behavior cannot stop data flowing between it and the mainland. Once it is no longer in the EU, that situation will change dramatically.
It is by no means a certainty that the U.K. will be able to continue to participate in the European single market—something that Brexit campaigners promised, but that may be tricky to negotiate in the face of hostility from EU governments.
The majority of British tech startups came out against Brexit ahead of the vote. They warned that Brexit would hurt confidence in the sector and make it more difficult to hire talent from abroad. Microsoft warned that Brexit would make it less likely to invest more in the U.K.
And the U.K.’s rivals won’t hold back in taking advantage of the situation. Just hours after the referendum result came through, the Berlin-based venture capital provider German Startups Group issued a statement proclaiming that “Brexit is good news for the German startup scene.”
“Only since 2015 was Berlin able to surpass London, the previously dominant hub of Europe, in the number of and overall volume of financial transactions from startups,” said CEO Christoph Gerlinger. “This development will now accelerate and the distance between Berlin vs. London will increase. We expect a significant decrease in new incorporations in London in favour of Berlin, as well as an influx of successful London startups. This will be particularly true of the especially dynamic [financial technology] sector.”
The Federation of German Startups also said Berlin will emerge as the winner in the Brexit scenario, although it added: “It is a victory we do not want and will not be celebrating.”
As for tech users, British people may no longer be able to get cheap mobile calls and data when they visit the EU, as recent EU legislation allows. The new EU net neutrality rules now probably also won’t apply in the U.K., which could be bad news for consumers there.
Another thing to look out for will be radio spectrum. The EU is currently on a drive to harmonize the spectrum allocations made by countries around the bloc, in order to help the manufacturers of mobile devices, for example, to achieve efficiencies of scale.
With 5G around the corner, nobody wants countries diverging on which radiowaves they assign to super-fast mobile broadband. The U.K. will now no longer have to go along with the decisions made on the mainland—although again, following the EU’s lead would be the most obvious choice to make.
For now, all eyes are rightly focused on the post-Brexit carnage taking place in global markets—chaos that may well have its own impact on the tech sector. But in the long term, the repercussions of Thursday’s decision could be very profound and complex.
This article originally appeared on Fortune.com

EU gambled on UK not leaving - Wall Street Journal

U.S. politicians react to Brexit vote
Last Updated Jun 24, 2016 9:57 AM EDT
During a tour of his golf courses in Scotland, Donald Trump praised the results of Thursday's British vote to exit the European Union, calling it a sign that the United Kingdom "took back control of their country."
"It's a great thing," Trump told reporters Friday at the reopening of his Turnberry, Scotland golf resort. "They're angry over borders, they're angry over people coming into the country and taking over."

In a separate statement posted to his Facebook page, the billionaire pledged to "strengthen our ties with a free and independent Britain," and assured Americans that they too would have an opportunity to "declare their independence" in November's general election.
He also noted that the British vote -- also widely known as "Brexit" -- reflected some parallels to his own bid for the White House.
"I think there are great similarities between happened here and my campaign," the business mogul said in his press conference. "People want to take their country back."
He also predicted that the plummeting worth of Britain's currency could be a net positive in the future, even saying that it could benefit his own business interests in Scotland.
"If the pound goes down, more people are coming to Turnberry frankly," Trump said, referring to his latest golf resort.
In a tweet, Trump said he observed Scotland "going wild" over the referendum results:
Follow


Donald J. Trump

‪@realDonaldTrump‬
Just arrived in Scotland. Place is going wild over the vote. They took their country back, just like we will take America back. No games!
7:21 PM - 24 Jun 2016
* 10,615 10,615 Retweets
23,773 23,773 likes


Scotland, however, voted to remain in the EU.


Other U.S. politicians also weighed in on the historic vote, including President Barack Obama.
"The people of the United Kingdom have spoken, and we respect their decision," the president wrote in a short statement Friday morning, assuring that the "special relationship" between the U.S. and the U.K. would still remain intact.
"The United Kingdom and the European Union will remain indispensable partners of the United States even as they begin negotiating their ongoing relationship to ensure continued stability, security, and prosperity for Europe, Great Britain and Northern Ireland, and the world," he said.
Vice President Joe Biden sought to assure Ireland and the EU over their relationships with the U.S. while attending a medal ceremony at Trinity College in Dublin.
"I must say we had looked for a different outcome. We would have preferred a different outcome," Biden said at the university, where he received an honorary law doctorate. "And I would imagine many of you here felt the same way."
But as the United States has a long standing friendship with the United Kingdom, one of the world`s great democracies, we respect the decision that they have made," the vice president added. "And I want to assure all of you in this room that America`s special bond with the United Kingdom runs deep and it will endure, and our relationship with Ireland and with the European Union will remain the cornerstone of our global engagement."


U.S. markets prepare for turmoil after Brexit vote
Democrats' presumptive presidential nominee, Hillary Clinton, released a statement addressing the British vote, saying she "respect[s] the choice the people of the United Kingdom have made."
She noted, however, that the decision to leave the European Union meant "economic uncertainty" in the near future.
"Our first task has to be to make sure that the economic uncertainty created by these events does not hurt working families here in America," Clinton wrote. "We also have to make clear America's steadfast commitment to the special relationship with Britain and the transatlantic alliance with Europe."
She added that "this time of uncertainty" highlights the need for "calm, steady, experienced leadership" in the White House.
Bernie Sanders, Clinton's rival, also voiced his "concerns" about the vote.
"I think it's a decision for the British people but I have concerns," Sanders, a Vermont senator, said in an interview with "CBS This Morning" Friday. "I have concerns you know when we think back over the last 100 years and the horrible wars, the kind of blood that was shed throughout Europe -- the idea of the countries coming closer together is something that we want to see."


Sanders on Brexit, what it would take for him to endorse Clinton
But, he added, "a lot of people are being left behind in this global economy."
House Speaker Paul Ryan, R-Wisconsin, maintained that the relationship between the U.S. and the United Kingdom would remain "unaffected" by the British departure from the EU.
"I respect the decision made by the people of the United Kingdom," Ryan said in a statement Friday morning. "The UK is an indispensable ally of the United States, and that special relationship is unaffected by this vote."
Civil rights icon and U.S. Rep. John Lewis, R-Georgia, warned that the vote would have a "devastating" effect on the global economy.
"It is unbelievable. It is unreal," Lewis told "CBS This Morning" Friday. "I believe it is going to have a devastating effect and amazing impact on the market all around the world. I'm interested in seeing what the president is going to say today, what the secretary of treasury is going to say today and maybe how Wall Street reacts today."

Donald Trump ’s arrival in Scotland on Friday to visit one of his golf courses was precisely the metaphor that the Brexiteers didn’t want. The presumptive Republican presidential nominee cheerily declared that the British had just “taken back their country” in the same way that he’s inviting Americans to do—underscoring one of the biggest misconceptions about the EU referendum campaign. Britain isn’t having a Trump moment, turning in on itself in a fit of protectionist and nativist pique. Rather, the vote for Brexit was about liberty and free trade—and about trying to manage globalization better than the EU has been doing from Brussels.
The Brexit campaign started as a cry for liberty, perhaps articulated most clearly by Michael Gove, the British justice secretary (and, on this issue, the most prominent dissenter in Mr. Cameron’s cabinet). Mr. Gove offered practical examples of the problems of EU membership. As a minister, he said, he deals constantly with edicts and regulations framed at the European level—rules that he doesn’t want and can’t change. These were rules that no one in Britain asked for, rules promulgated by officials whose names Brits don’t know, people whom they never elected and cannot remove from office. Yet they become the law of the land. Much of what we think of as British democracy, Mr. Gove argued, is now no such thing.


Instead of grumbling about the things we can’t change, Mr. Gove said, it was time to follow “the Americans who declared their independence and never looked back” and “become an exemplar of what an inclusive, open and innovative democracy can achieve.” Many of the Brexiteers think that Britain voted this week to follow a template set in 1776 on the other side of the Atlantic.
Mr. Gove was mocked for such analogies. Surely, some in the Remain camp argued, the people who were voting for Leave—the pensioners in the seaside towns, the plumbers and chip-shop owners—weren’t wondering how they could reboot the Anglo-Scottish Enlightenment for the 21st century. Perhaps not, but the sentiment holds: Liberty and democracy matter. As a recent editorial in Der Spiegel put it, Brits “have an inner independence that we Germans lack, in addition to myriad anti-authoritarian, defiant tendencies.”
Mr. Cameron has been trying to explain this to Angela Merkel for some time. He once regaled the German chancellor with a pre-dinner PowerPoint presentation to explain his whole referendum idea. Public support for keeping Britain within the EU was collapsing, he warned, but a renegotiation of its terms would save Britain’s membership. Ms. Merkel was never quite persuaded, and Mr. Cameron was sent away with a renegotiation barely worthy of the name. It was a fatal mistake—not nearly enough to help Mr. Cameron shift the terms of a debate he was already well on the way to losing.
The EU took a gamble: that the Brits were bluffing and would never vote to leave. A more generous deal—perhaps aimed at allowing the U.K. more control over immigration, the top public concern in Britain—would probably have (just) stopped Brexit. But the absence of a deal sent a clear and crushing message: The EU isn’t interested in reforming, so it is past time to stop pretending otherwise.

Donald Trump ’s arrival in Scotland on Friday to visit one of his golf courses was precisely the metaphor that the Brexiteers didn’t want. The presumptive Republican presidential nominee cheerily declared that the British had just “taken back their country” in the same way that he’s inviting Americans to do—underscoring one of the biggest misconceptions about the EU referendum campaign. Britain isn’t having a Trump moment, turning in on itself in a fit of protectionist and nativist pique. Rather, the vote for Brexit was about liberty and free trade—and about trying to manage globalization better than the EU has been doing from Brussels.
The Brexit campaign started as a cry for liberty, perhaps articulated most clearly by Michael Gove, the British justice secretary (and, on this issue, the most prominent dissenter in Mr. Cameron’s cabinet). Mr. Gove offered practical examples of the problems of EU membership. As a minister, he said, he deals constantly with edicts and regulations framed at the European level—rules that he doesn’t want and can’t change. These were rules that no one in Britain asked for, rules promulgated by officials whose names Brits don’t know, people whom they never elected and cannot remove from office. Yet they become the law of the land. Much of what we think of as British democracy, Mr. Gove argued, is now no such thing.


Instead of grumbling about the things we can’t change, Mr. Gove said, it was time to follow “the Americans who declared their independence and never looked back” and “become an exemplar of what an inclusive, open and innovative democracy can achieve.” Many of the Brexiteers think that Britain voted this week to follow a template set in 1776 on the other side of the Atlantic.
Mr. Gove was mocked for such analogies. Surely, some in the Remain camp argued, the people who were voting for Leave—the pensioners in the seaside towns, the plumbers and chip-shop owners—weren’t wondering how they could reboot the Anglo-Scottish Enlightenment for the 21st century. Perhaps not, but the sentiment holds: Liberty and democracy matter. As a recent editorial in Der Spiegel put it, Brits “have an inner independence that we Germans lack, in addition to myriad anti-authoritarian, defiant tendencies.”
Mr. Cameron has been trying to explain this to Angela Merkel for some time. He once regaled the German chancellor with a pre-dinner PowerPoint presentation to explain his whole referendum idea. Public support for keeping Britain within the EU was collapsing, he warned, but a renegotiation of its terms would save Britain’s membership. Ms. Merkel was never quite persuaded, and Mr. Cameron was sent away with a renegotiation barely worthy of the name. It was a fatal mistake—not nearly enough to help Mr. Cameron shift the terms of a debate he was already well on the way to losing.
The EU took a gamble: that the Brits were bluffing and would never vote to leave. A more generous deal—perhaps aimed at allowing the U.K. more control over immigration, the top public concern in Britain—would probably have (just) stopped Brexit. But the absence of a deal sent a clear and crushing message: The EU isn’t interested in reforming, so it is past time to stop pretending otherwise.


Former London Mayor Boris Johnson, a likely candidate to lead the Conservative Party, during a pro-Brexit campaign visit in London Wednesday.PHOTO: EUROPEAN PRESSPHOTO AGENCY

With no deal, all Mr. Cameron could do was warn about the risks of leaving the EU. If Brits try to escape, he said, they’d face the razor wire of a recession or the dogs of World War III. He rather overdid it. Instead of fear, he seemed to have stoked a mood of mass defiance.
Mr. Obama also overdid it when he notoriously told the British that, if they opted for Brexit, they would find themselves “in the back of the queue” for a trade deal with the U.S. That overlooked a basic point: The U.K. doesn’t currently have a trade deal with the U.S., despite being its largest foreign investor. Moreover, no deal seems forthcoming: The negotiations between the U.S. and the EU over the trans-Atlantic Trade and Investment Partnership are going slowly, and the Brits involved in the talks are in despair.
Deals negotiated through the EU always move at the pace dictated by the most reluctant country. Italy has threatened to derail a trade deal with Australia over a spat about exports of canned tomatoes; a trade deal with Canada was held up after a row about Romanian visas. Brexit wasn’t a call for a Little England. It was an attempt to escape from a Little Europe.
Many British voters felt a similar frustration on security issues, where the EU’s leaders have for decades now displayed a toxic combination of hunger for power and incompetence at wielding it. When war broke out in the former Yugoslavia in 1991, the then-chair of the European Community’s Council of Ministers declared that this was “the hour of Europe, not the hour of the Americans—if one problem can be solved by the Europeans, it is the Yugoslav problem.” It was not to be.
Nor did the EU acquit itself much better in more recent crises in Ukraine and Libya. Field Marshal Lord Charles Guthrie, a former chief of the British military, put it bluntly last week: “I feel more European than I do American, but it’s absolutely unrealistic to think we are all going to work together. When things get really serious, we need the Americans. That’s where the power is.” Brits feel comfortable with this; the French less so.
Throughout the campaign, the Brexit side was attacked for being inward-looking, nostalgic, dreaming of the days of empire or refusing to acknowledge that modern nations need to work with allies. But it was the Brexiteers who were doing the hardest thinking about this, worrying about the implications of a dysfunctional EU trying to undermine or supplant NATO, which remains the true guarantor of European security.
In the turbulent weeks and months ahead, we can expect a loud message from the Brexiteers in the British government: The question is not whether to work with Europe but how to work with Europe. Alliances work best when they are coalitions of the willing. The EU has become a coalition of the unwilling, the place where the finest multilateral ambitions go to die. Britain’s network of embassies will now go into overdrive, offering olive branches in capital after capital. Britain wants to deal, nation to nation, and is looking for partners.

Even the debate about immigration had an internationalist flavor to it. Any member of any EU state has had the right to live and work in Britain; any American, Indian or Australian needs to apply through a painstaking process. Mr. Cameron’s goal is to bring net immigration to below 100,000 a year (it was a little over three times that at last count). So the more who arrive from the EU, the more we need to crack down on those from outside the EU. The U.K. government now requires any non-European who wants to settle here to earn an annual salary of at least £35,000 (or about $52,000)—so we would deport, say, a young American flutist but couldn’t exclude a Bulgarian convict who could claim (under EU human-rights rules) that he has family ties in the U.K.
To most Brits, this makes no sense. In a television debate last week, Mr. Cameron was asked if there was “anything fair about an immigration system that prioritizes unskilled workers from within the EU over skilled workers who are coming from outside the EU?” He had no convincing answer.
The sense of a lack of control over immigration to Britain has been vividly reinforced by the scenes on the continent. In theory, the EU is supposed to protect its external borders by insisting that refugees claim asylum in the first country they enter. In practice, this agreement—the so-called Dublin Convention—was torn up by Ms. Merkel when she recklessly offered to settle any fleeing Syrians who managed to make it over the German border. The blame here lies not with the tens of thousands of desperate people who subsequently set out; the blame lies with an EU system that has proven itself hopelessly unequal to such a complex and intensifying challenge. The EU’s failure has been a boon for the people-trafficking industry, a global evil that has led to almost 3,000 deaths in the Mediterranean so far this year.
Britain has been shielded from the worst of this. Being an island helps, as does our rejection of the ill-advised Schengen border-free travel agreement that connects 26 European countries. But the scenes on the continent of thousands of young men on the march (one of which made it onto a particularly tasteless pro-Brexit poster unveiled by Nigel Farage, the leader of the anti-immigration UK Independence Party) give the sense of complete political dysfunction. To many voters in Britain, this referendum was about whether they want to be linked to such tragic incompetence.
The economists who warned about the perils of Brexit also assure voters that immigration is a net benefit, its advantages outweighing its losses. Perhaps so, but this overlooks the human factor. Who loses, and who gains? Immigration is great if you’re in the market for a nanny, a plumber or a table at a new restaurant. But to those competing with immigrants for jobs, houses or seats at schools, it looks rather different. And this, perhaps, explains the stark social divide exposed in the Brexit campaign.
Seldom has the United Kingdom looked less united: London and Scotland voted to stay in the EU, Wales and the English shires voted to get out. (Scottish First Minister Nicola Sturgeon has already called a fresh vote on secession “highly likely.”) Some 70% of university graduates were in favor of the EU; an equally disproportionate 68% of those who hadn’t finished high school were against it. Londoners and those under age 30 were strongly for Remain; the northern English and those over 60 were strongly for Leave. An astonishing 70% of the skilled working class supported Brexit.
Here, the Brexit battle lines ought to be familiar: They are similar to the socioeconomic battles being fought throughout so many Western democracies. It is the jet-set graduates versus the working class, the metropolitans versus the bumpkins—and, above all, the winners of globalization against its losers. Politicians, ever obsessed about the future, can tend to regard those left unprotected in our increasingly interconnected age as artifacts of the past. In fact, the losers of globalization are, by definition, as new as globalization itself.
To see such worries as resurgent nationalism is to oversimplify. The nation-state is a social construct: Done properly, it is the glue that binds society together. In Europe, the losers of globalization are seeking the protection of their nation-states, not a remote and unresponsive European superstate. They see the economy developing in ways that aren’t to their advantage and look to their governments to lend a helping hand—or at least attempt to control immigration. No EU country can honestly claim to control European immigration, and there is no prospect of this changing: These are the facts that led to Brexit.
The pound took a pounding on the currency markets Friday, but it wasn’t alone. The Swedish krona and the Polish zloty were down by about 5% against the dollar; the euro was down 3%. The markets are wondering who might be next. In April, the polling firm Ipsos MORI asked voters in nine EU countries if they would like a referendum on their countries’ memberships: 45% said yes, and 33% said they’d vote to get out. A Pew poll recently found that the Greeks and the French are the most hostile to the EU in the continent—and that the British were no more annoyed with the EU than the Swedes, the Dutch and the Germans.
The Brexit campaign was led by Europhiles. Boris Johnson, the former London mayor turned pro-Brexit firebrand who now seems likely to succeed Mr. Cameron, used to live in Brussels and can give interviews in French. Mr. Gove’s idea of perfect happiness is sitting on a wooden bench listening to Wagner in an airless concert hall in Bavaria. Both stressed that they love Europe but also love democracy—and want to keep the two compatible. The Brexit revolution is intended to make that point.
Mr. Gove has taken to borrowing the 18th-century politician William Pitt ’s dictum about how England can “save herself by her exertions and Europe by her example.” After Mr. Cameron departs and new British leadership arrives, it will be keen to strike new alliances based on the principles of democracy, sovereignty and freedom. You never know: That might just catch on.
Mr. Nelson is the editor of the Spectator and a columnist for the Daily Telegraph.