E.U: Leave or Stay? Your thoughts.

We are part of the EEA through our EU membership. But we'd be joining the EEA after leaving the EU and all governments involved in the EEA have to ratify so it would be implied that we'd leave and then join, even if only in a technical or legal sense. (lawyers and parliamentarians have debated over less)

Every document I read about the post brexit analysis uses join the EEA, not remain.

If we are to have a second referendum on the eventual deal like an EEA/EFTA then it should respect the first referendum and offer an EEA/EFTA or no EEA/EFTA question. Rather than EEA/EFTA deal or EU.

The first referendum already settled whether we'll be in the EU itself or not.

 

Fair point.

Battery dying, but here's a relevant article: http://observer.com/2016/07/now-that-the-dust-has-settled-heres-what-brexit-can-teach-us-yankees/

 

If that's true and Britain has to leave the EU join the EEA. Does that mean it's joining of the EEA can be vetoed by one of the member countries?

 

Yes.

Linky

Although I could be wrong about the legal sense and Nexxo could be right, or we could both be wrong in some unforeseen way neither of us are lawyers. But then again lawyers have argued over less

 

As I understand it, the other 30 member states of the EU and EEA combined can veto it. In fact it only takes one.

 

I don't really know what can be done about the post truth nature of our politics, but the article has a very threadbare supply of ideas in his fixit basket too.

I don't agree with the point that referendums cause politicians to lie.

In my opinion the idea that referendums cause worse lies, because the politicians involved wont face the electorate over them, is somewhat misguided for a few reasons.

Firstly politicians that are elected still have to face their constituency and a party's conduct can also threaten to tear it asunder (in the case of labour). So there are still some consequences, still not enough and still diminished.

But those diminished consequences IMO don't lead to worse lies, just more obvious lies.

The lies that led us into Iraq over WMDs, the lies that led us into austerity by comparison to greece and shouting about imminent bankruptcy, lies about those on benefits in terms of the prevalence of inter-generational scroungers.

All of those things were gross misrepresentations of reality and you'd either have to be a liar or ignorant to propose that they were the reality.

However they weren't as obvious lies as that bloody 350mn NHS one.

To find out that the UK wasn't going to become greece and why you'd have to understand a fair amount of economics.

To find out that 350mn wasn't going on the NHS just required a cursory glance at our EU contribution, to subtract the rebate and divide by 52.

Then realise it's already much smaller now than 350mn, then realise that our net contribution has already been promised out to people and then realise there's a lot less left.

To me it just seems the lies get more complicated rather than less consequential.

It was stated earlier in this thread that a mark wants to be conned.


I think some of those leave inclined just wanted a nice thing to say to justify their position "I want to put more money in the NHS to care for our people"

Much similar can be seen in the willingness to insist on more wild forecasts of economic doom and misrepresentation of a supply side problem(income we'll never see) as a demand side problem (income we'll immediately lose).

It's a theme I notice on the remain side as well, especially post referendum, that those who voted remain and were invested in that decision (rather than soft/hold nose/ fear/status quo voters) seem to want to take any bad news, and no matter how tenuously, link it to Brexit.

Funnily enough; in sort of the same fashion that I always found so tedious about UKIP kippers on question time. Whereby every single time they spoke they would try to convince you how every issue was to do with our membership of the EU.

I would call it insanity but it's so prevalent across the political spectrum that it must just be the default position of being human

 

Surely then Britain has a near zero negotiating leverage with EU. I mean I thought it had some, being a major economy in Europe. But without the ability to slip back into the EEA unhindered what can Britain do?

 

There is plenty for them to consider.

Firstly is the problem of our financial services. Even for the advantages to the EU of trying to take a slice, if they do they risk huge financial market volatility that the eurozone in its current state can't really risk.

On top of that hitting our financial services would result in a large permanent real devaluation in the pound against the Euro which could turn around our trade deficit with the EU and result in large scale investment in goods production rather than the City which in the long term could leave us in a better position than Germany in trade terms depending on how much they manage to diminish the city. (also in the short run that would cause a lot of pain for us in terms of the quick inflation spike and readjustment of city of london to manufacturing) (however in the long run it'd be likely better for us as the CA deficits we have will have to change eventually and that will be much more painful)

Our financial services is more of a hot potato than people consider and is not necessarily an advantage to the UK in the long run anyway because it simply makes it easier for domestic debt to be run up, keeps our exchange rate uncompetive and can cause debt fuelled crashes.

and that's just one area and the tightrope Europe may have to consider in one sector.


EDIT:

Also we are a country in a political union and trade block that makes up 16.5% of total EU GDP.

We export over 200bn to the EU and Import over 250bn from the EU. How they handle this matters a lot.

Then there's FDI from the UK to the EU.
And FDI from the EU to the UK


Then there's all the investments made by various EU companies in the UK and UK in the EU.

This is the tip of the iceberg of things that they have to consider the effects of just for themselves as well as we do.

So they can't necessarily just run us over in negotiations.

There's a reason why smaller countries don't get steamrolled by Europe is because it is usually in the interests of the winners in the EU to get the most integration possible and there are usually few drawbacks for those without an interest and the losers never counted anyway to them (which is how the EU and Eurozone ended up like this anyway).

 

I don't think moving financial services out of Britain is going to affect anyone else but Britain. Those services will still be available to those that want them and if they are operating within the EU, then it will be very much business as usual.

The rest of what you have describes seems to be very much an unlikely Rube Goldberg machine of events.

 

The amount of money coming into the city keeps the pound high .

Damage that sector will cause some serious short term damage to the UK and in the short run and long run will change the balance of payments away from deficits with Europe to surpluses depending on how much damage is done.

It's mainstream economic theory which to be fair considers events in such a way, (Just look in depth into the macro of the Eurozone crisis if you want a headache

I'll cede to paul krugman to explain this one:

Conscience of a liberal

 

Krugman, says investments ear marked for the UK will return regardless of what happens to the financial services there. He fails to deal with the topic of why those earmarked investments would not simply move elsewhere in the world, be that the EU, a BRIC or somewhere else.

Another question is why would these unnamed firms wait to invest in the UK? Future money is worth less than now money. Why not just invest somewhere else now, rather than wait for an undefined length of time just to watch money set aside for investment devalue to see if things stabilise in the UK.

It seems optimistic to say the least.

 

Because, ceteris paribus, all investments that offer enough expected returns to offer a positive net present value* elsewhere are already being exploited to the point where any further investment in those outside UK assets would provide too close to a negative net present value*.

Meaning that any increase in rest of world investments would not offer enough returns to justify any increase the rate at which they invest.

A portion of our investment flows may be dammed up rather than diverted.

Therefore it is better to hold off investment until the winners and losers have been decided and the NPV of whichever UK investments win becomes more certain.

In other words (I=S)=(L=M), the world economies are in equilibrium.

(there may have been a temporary negative shock to our investment curve as a result of uncertainty over where the returns are, but that is isolated to Britain, for the held off investments to be spent elsewhere brexit would have to be a positive shock to the rest of the world investment curve increasing expected returns on investment elsewhere which there is no evidence for)

There is evidence that investment is being put on hold as investment funds are holding increased cash and bond yields have fallen rather than more money being invested elsewhere since brexitlinky

(The fact that some bond yields are negative and most are near zero implies a lot of money sitting round anyway so it's not like we're in a situation where the savings in the world are chasing down investments because the opportunities are so good they can't be missed)

Trust me there a far crazier sounding things in economics than that.

If this were in person I could draw a graph but I don't think that would clear it up any better either

*Net present value or NPV the value of an investments discounted** returns minus the discounted** costs

** Discounting: the practice whereby cash flows are adjusted for the fact that money now is worth more than money in the future.

 

This is, of course, assuming that the EU is being purely rational about this and not prepared to take an economic hit for their principles. If the UK isn't entirely rational about this, why would the EU be? The important thing to realise is that the UK has always framed its relationship with the EU in adversarial, rather than cooperative terms. And that is now coming right back at it.

Another issue is how easily the UK can switch from a mainly service-based economy to a high-end manufacturing one (seeing as mass manufacturing is pretty much sown up by countries like China and India). The UK would go up against countries like Switzerland and Germany and that will take decades of investment from education to industry. The talent is there, but the infrastructure and arguably training is not.

Britain's negotiating position is discussed by the Treasury in this video, from 11:30 onwards.

 

Greetings!

And it continues to do so.

 

Yes it does say cash holdings are going up but the end of that linky says that people are reducing investments in countries that are touched by Britain and increasing else where. Which is basically what I was saying. Those cash holdings don't need to back into Britain or Europe.

Are you saying that it is rational to trade one's principles for money? To me that seems like it would be the foundation of corruption

 

Are you saying that it is rational to adhere to principles that may prove to be destructive to the greater good? And that adherence to principles is incompatible with corruption?

But if you want, you can in this context replace "rational" for "pragmatic".

Indeed. Kind of dilutes May jetting around Europe spreading the message "Let's be friends".

 

No

It's not making any such assumption. The short term demand side problem that may arise is due to uncertainty and correct with certainty and an adjustment from the winners to the losers of the new deal. (whether the pount remains high, finance protected, or the pound drops like a stone, finance not protected.)

The only economic hit, besides that could be caused by European UK negotiations necessitating a disruptive CHANGE (not loss), would be a supply side issue which means that output potential falls.

Germany only is such a famed manufacturer and exporter because of the way they have manipulated currency systems to their advantage.

This idea that it is inevitable that Germany runs current account surpluses is fallacious.

Germany had the ERM where the mark was pegged high against other currencies.
And also had the Euro which made them trade at an even worse than ERM rate 1:1 with eurozone countries. And gave them an effective low exchange rate with the rest of the world as the value of the Euro is lower as a result of less productive economies.

In the intervening period between the ERM and Euro germany ran current account deficits.

The point is that a significant devaluation in the pound would result in large investment in capital equipment also it would make our exported services more competitive.
The size of the UK manufacturing sector is 21% GDP and the size of germany's is 28% of GDP. While investing in capital equipment may be an inefficient allocation between labour and capital in the short run, the relative productivity differential should be more than made up by the decrease in sterling in the short run.

It's fallacious to suggest that the UK has lower (absolute) manufacturing size or potential for growth. All that has happened is that the UK service sector is has grown faster than all others. The absolute size of the manufacturing sector has grown significantly over the past 40 years, the issue is the other slices of the pie have just grown faster.

And our services also work in high skilled knowledge services that would also benefit from a decrease in sterling. It's not all starbucks and primark.

The point is that IF, IF the financial services are so sensitive to a change in access to the single market that any loss of this sector over time in the post brexit climate would lead to currency devaluation because the strong financial sector creates demand for the pound as savings are invested there.

Readjusting equity portfolios is different from real economy investment decisions.
The first is liquid and the latter is not.
The first affects primarily the stock market, the latter effects the real economy

The point I was meant to be illustrating is that as bond yeilds fall that indicates money is being hoarded and that there is no indication that firms are shifting their capital investment decisions, on balance, anywhere else.

Equity portfolios are liquid and although there is a slight change in composition that can immediately shift the other way overnight.

Investment decisions cannot be changed over night they are permanent.

 

The EU is unlikely to serve any greater good by dismissing its principles to facilitate the UK.

 

Indeed, in case of the EU it may be more rational to stick to its principles. But that is looking at it from a broader perspective than just an economic one. The UK however expects the EU to be rational in the economic sense (i.e. act to maximise reward = money), not in the broader sense, even though the UK is not acting rationally in purely the economic sense either.

However in the general sense rationale and principles are not necessarily related, nor indeed incompatible with corrupt behaviour.

 

and another question is whether a dogmatic stance on the EU's current principles match the principles that in reality would ensure the survival of the Eurozone and the EU itself in the long term.