Saturday, 25 June 2016

Brexit Was More A Coup d'Etat Than A Revolution

A very bright friend of mine cast his very, very cynical eye over the Brexit vote and, not surprisingly, came to quite different conclusions than the majority of the post-referendum comment. According to him, very little of any great significance will be changed. I give a brief summary of his views.

“Too many people view this vote as a revolt of the so-called underclasses against the domination of the elites. According to this narrative these underclasses felt very ‘hard-done-by’ because they saw the immigrants and the cosmopolitan people of London racing far ahead of them. Rather than make any effort to join the happy new world order they did the only thing they know how to do and threw the whole cart upside down. Worked in Paris in 1789. Should work in the UK in 2016. What these people forget is that sans culottes of 1789 enjoyed a very brief ‘victory’ before the elites re-established themselves. The exact same thing will happen here. This was much more a coup d'etat than a revolution.”

Is Brexit a revolt by the modern sans culottes?

“The usual doom-and-gloom commentators overlook the fact that the Leave movement was led by members of the very elite the underclasses thought they were overthrowing. It is very doubtful that those underclasses by themselves could have pulled off a Leave victory. No, it took the efforts of these highly educated, wealthy, mostly older members of the ruling establishment to accomplish that feat. What’s odd is that most of them have nothing against the hot button of immigration per se. Some of the immigrants, after all, provide very useful functions like serving a good gin-and-tonic at their golf clubs or maintaining their lush gardens. This section of the elite would never want to be associated with the near-racist rants of clowns like Nigel Farage.

“What does annoy them greatly is the urge by many European Union officials for an ever closer political union. They look back on Britain’s long political history and relative stability and shudder when they look across the Channel at the very confused political history and instability of many continental countries. ‘God forbid that ever comes our way!’

“For them, the EU is fine as a trading bloc, but no more. Their faces flush with indignation at every intrusion of EU courts into the long-established and respected British legal system. ‘Who the hell are those buggers to tell us when we can throw some bomb-throwing mullah into jail for the rest of his natural life? Or, better yet, hand him over to the Americans?!

“This class of people enjoys going to the fine watering holes of the continent and going through the faster EU line at passport control. They enjoy loading up their cars and bringing home crates of fine French wines without the nuisance of duties. Many of them are multi-lingual and have homes in the garden spots of France, Italy, or Spain. It would be a major annoyance and inconvenience to them if these privileges were forfeited and they had to go through the longer wogs’ line at passport control.

            “What the assorted pundits are also forgetting is that the long and tedious negotiations with the European Union over the its new relationship with the UK will be led by that very elite the underclass thought it was rejecting. Just look at them. Michael Gove, Boris Johnson, various columnists for the Daily Telegraph. All of them are card-carrying members of the British elite. The out-of-work coal miners in West Yorkshire won’t get within shouting distance of the negotiating table. Maybe they should. But they won’t.

How clever are they?

             “The UK negotiating team will be dealing with like-minded people in the EU who are also nervous as hell about the right-wing mobs snapping at their heels. It is to everyone’s interest, even the bloody-minded Frogs, to get this thing settled with as little fuss and disruption as possible.

“My rough guess is that in the final agreement the UK will retain trading rights but will have to accept the EU principle of free movement of labor. London’s financial center may take a hit, but that would not bother Joe Blogs of Middle England. He never liked those ‘posh toffs’ with their fat bonuses anyway. The UK will not be subject to the EU legal system, and will not be part of the EU decision making process. It will also not be eligible for any EU subsidies for agriculture or clean energy. An interesting point is the UK’s role, if any at all, in a European defense system that is outside NATO. Also, will the French get testy and deny British companies any role in Airbus?”

“In short, there won’t be much in the new deal what will really please those members of tribal England who thought they had completely rejected the EU. The immigrants will still come, the EU will still impose some niggling little rules, and England’s football team will still fail to advance very far in international competition. The British elite really is quite good at negotiating, and the new deal won’t be terribly different from the old deal. The elite is even better at fudging the reality of any deal arrangement to make it seem something it is not. Plus ça change and all that.”

            We can only hope that the self-styled members of this very British elite are half as clever as they think they are and can control the powerful tribal forces they have unleashed.

Friday, 24 June 2016

Can The European Union And The UK Avoid A Complete Train Wreck?

After the UK’s slightly surprising referendum results, the ‘Brexiters’ are gleefully extolling Britain’s new found ‘independence’ from the perfidious European Union while most of the sober main-line newspapers are wringing their hands over the country’s descent into prolonged economic and political confusion. Both reactions are premature, at best.

While there are clear winners -- Vladimir Putin and real estate agents in Frankfurt and Dublin for example– and some likely losers such as Prime Minister David Cameron and London’s financial district, the full impact will take months if not years to become apparent.

The biggest loser of the UK's referendum
If, and I do realize it is an enormous If, both the UK and European Union officials exercise just a bit of imagination and some flexibility both sides could emerge from this mess with a semblance of order. There is precedent for the EU forging a new type of relationship with the UK, but other EU countries would first have to get over their collective anger and pique that someone could reject their over-engineered structure.

That precedent, something like a privileged partnership, has been on the table for several years with Turkey. While most of the EU countries reject the very idea of a country as large and autocratic as Turkey becoming a full member they have from time to time offered the idea of this privileged partnership. Essentially, such a partner would enjoy most of the benefits of the trade privileges of the EU, but would not be part of the decision making process. Turkey, with its exaggerated amour proper, always rejected this compromise as being beneath its dignity. What the Turks so indignantly rejected could be very usefully be offered to the UK.

While the exact nature of this partnership would take long and tortuous negotiations to hammer out it is far better that both sides work out a compromise rather than storm off in a huff of injured pride. Broadly speaking the UK would have to recognize that a complete rupture could do serious damage to the Western European economic and geopolitical structure that – while imperfect – has provided an unparalleled level of political and material security to its citizens since the end World War II.

It would be idiotic beyond belief to put this at risk just because of injured pride. A look at Vladimir Putin rubbing his hands in glee at the self-immolation of the EU should reinforce this point. How long does anyone think he would take to increase the pressure on the Baltic states or countries like Romania and Bulgaria to return to the ‘true’ fold?

The EU would have to realize that such a complete rupture would not be in its best interests. Free trade between the UK and the EU benefits both sides enormously. The ‘Brexiters’ in the UK will also soon find out that trade with the rest of the world without the EU behind it could be very difficult with all the new treaties that would have to be negotiated.

Most likely the cost of this trade relationship is the continued free movement of labor within the EU and the UK. Again, while the ‘Brexiters’ loudly condemned this free movement, it is very difficult to see how this free movement within the EU has hurt the UK. Quite the contrary, with the UK’s unemployment rate hovering around 5% it is clear this movement of labor has supported the UK’s growth.

In this new relationship, it is difficult to see the City of London retaining its pre-eminent position. Yes, London, even outside, the EU, offers much deeper financial services than any other place on the continent. But the EU may well insist as part of any deal that UK financial service firms can operate in the EU only if they are based in the EU. The only two EU cities that have any of the required financial infrastructure to handle such an influx of business are Dublin and Frankfurt.

In short, there is plenty of room for both sides to reach a compromise that does not threaten the geopolitical structure of Western Europe. But first, EU officials must recognize that the common perception of them as elitist, dogmatic, undemocratic technocrats out of touch with real citizens has led to this impasse. It is well past time for them to do a little soul-searching about their constant over-reach and intrusion into the life styles of member states.

It would also be nice if the ‘Brexiters’, for their part, recognized that no country has the absolute sovereignty they loudly proclaim. The world is simply too interconnected these days. A wrong word in London, Beijing, New York, Tokyo, or Berlin can have an instant economic and political impact. We will soon see if both sides are mature enough to step back from the abyss they have opened to reach a reasonable compromise.

          Then again, maybe nothing much has changed Britain's view of the European Union since the days of the famous comedy series Yes Minister.

Thursday, 9 June 2016

The President of Turkey Is Angry -- Again

Turkish president Tayyip Erdoğan is unhappy and angry – again. What upset him this time was the German Bundestag vote labelling the massacre of Armenians in Ottoman Turkey in 1915 genocide. But this anger and unhappiness are pretty much his default position when dealing with any criticism from Western countries.

By now governments in Europe and the United States should be familiar with the outrage and shock, shock of the ‘hypocrisy’ and ‘double standards’ he accuses the West of applying to Turkey. They should also pay absolutely no attention to this act – designed as it is for home consumption to ‘prove’ once again that Turkey is the victim of dastardly, perfidious outside influences. This might play well in Sivas, but not so well in Berlin.

When confronted with demands that Turkey stick to the original terms of the migrant deal allowing visa-free access for Turks to most of the European Union, Erdoğan’s henchman respond with real or feigned umbrage, loudly proclaiming that Turkey has ‘other options’ than the EU. Such as??

There was a time when the ‘other option’  claim might have been true. But under Erdoğan’s bizarre foreign policy and over-heated rhetoric Turkey is left with no other options at all. The Arab League does not want Turkey. The other Islamic countries are not about to submit to Turkish leadership. The so-called Shanghai Five group of Russia, China and various Central Asian autocracies might once have been a natural home for Erdoğan. But, given the rift with Russia, even that loose alliance is out of the question. Ever persistent, Erdoğan has turned his attention Central African countries in hopes of boosting economic and political ties. Well, who knows, that might just work. And then he can claim close alliances with Uganda, Kenya, Burundi, et. al. to fill the gap left by the European Union.

Erdoğan's lack of international influence was hammered home at the recent funeral of boxing great Muhammad Ali in Louisville, Kentucky. Erdoğan gathered together a plane load of flunkies and hustled off to Louisville in an attempt to show the world what a major player he was. Instead, he wound up looking like a completely out-of-place yokel who was told in no uncertain terms that he would not  speak at the funeral and would not be allowed to place a cloth from the Kaaba over Muhammad Ali's coffin. The humiliation only deepened when Bill Clinton and Arnold Schwarzenegger were seen greeting people at the funeral while Erdoğan was ignored. Miffed at this treatment Erdoğan packed up his entourage and returned to Turkey a day early.

Does anyone recognize this man??
This impotence in the face of the EU and U.S. infuriates Erdoğan. But, for the time being at least, there is nothing he can really do about it. He has never learned the first lesson of problem solving – ‘when you’re in a hole stop digging.’ The lesson for the EU leaders should be that they can afford to ignore Erdogan’s tirades when they remind him that brutal force against all real and perceived domestic opponents has severe negative consequences for Turkey.

All the trade and investment data show conclusively that Turkey is economically bound hand and foot to the European Union and North America. The EU countries and United States dominate trade with Turkey. The lion’s share of the dwindling foreign investment originates within the EU. Turkey depends almost entirely on funding from Western sources to close its current account deficit. None of this reality, however, stops Erdoğan from slamming the so-called ‘interest rate lobby’ for all of Turkey’s financial frailties.

The economic costs of Erdoğan’s  approach can best be seen in the numbers for direct foreign investment.

Since the banner years of 2006 and 2007 when direct foreign investment totalled almost $20 billion each year, the numbers have been falling sharply. In 2014, foreign direct investment tumbled to $8.5 billion. Last year in bounced up slightly to $11.8 billion, but in the first three months of 2016 it dropped to $1 billion compared with $3.3 billion in the first three months of 2015. One of the interesting points of this data collected by the Turkish Central Bank is that more than 80% of the direct foreign investment originates from Europe and North America – the very countries that bear the brunt of Erdoğan’s rants.

Meanwhile, the level of investment spending by Turkish companies outside Turkey continues to grow. In 2014 and 2015 it was more than $5 billion, and figures for the first three months of 2016 show a similar trend. This trend was reinforced by a comment from a senior officer of a large Turkish company who said he had more than $100 million to invest, and that every dollar of this amount was going outside Turkey. “There is much less risk outside Turkey than inside these days,” he commented.

A logical person might conclude that it is time for Erdoğan to recognize a few economic home truths and tone down is vitriolic anti-Western rhetoric. But then, one is not quite sure just how big a role logic plays in his foreign relations.

The problem is not limited to foreign relations. Domestically, the country is sharply polarized and violence has increased sharply. Previously the armed clashes were limited to the south-eastern part of the country. No longer. Now those bombs and clashes have migrated to the nation’s largest cities. One immediate effect of this trend is on the once-strong tourism sector. Tourists are staying away in droves, and one tour operator told me hotel occupancy around the country has fallen below 50%.
The latest car bomb in Istanbul killed 11 people
Of course Erdoğan and his henchmen blame foreign forces rather than look to anything they themselves may be doing wrong. Favorite targets are the Crusaders, the Mongol invaders, the Sevres Treaty, of course the Germans, and now even the hapless Zoroastrians are being blamed for car bombs in Istanbul. The government media overlook the wonderful irony of blaming the Crusaders while dressed up in warrior costumes of the Ottoman Empire – a far more successful crusading enterprise than the Crusaders ever were.
Ah, the good old days when people listened to the Sultan

A decade ago Turkey was considered a rising star among the so-called emerging markets. Leaders praised it as an example the combination of democratic values and ‘moderate’ Islam, a country that could be a shining example to the struggling nations of the Middle East. Sadly, those days are long gone.