Don’t Believe The Hype….
The good thing about the German election was it took the war of words between the two demagogues out of the headlines for a bit and distracted us from guessing which of them will throw their missiles out of the pram first.
It has been suggested that Mrs Merkel paid the price for letting in 1 million immigrants two years ago. However, there has been an uprising of populist parties both left and right wing worldwide which is seen as a backlash against the “establishment” parties and their grip on power. The fact it has happened in Germany which is by far the strongest economy in mainland Europe shows that it is not just countries that are struggling economically that have seen this occur.
It is with this anti-establishment backdrop that I find myself chuckling every few days as I read the latest on the Brexit talks. It seems to me that it is the EU side of the negotiations that is reported and done so in a manner that suggests we don’t know what is coming to us. That may be the case, but truth is we import more from the EU than we export therefore a reasonable deal is equally appealing to both sides.
I was also tickled by a speech a few weeks ago by Jean-Claude Juncker which suggested we were leaving a Garden of Eden, where trade deals with other parts of the world were imminent and immigration was going to be managed. The EU has been in existence since 1993 so it was eye opening to see the number of countries where no trade deal exists at present, never mind believe that all of a sudden they would be put in place. As for controlling the borders, I think that horse has well and truly bolted. The text of the speech suggests that either he is delusional or he is doing his best to pull the wool over our, and everyone else’s, eyes. It is probably the latter as the last thing the EU wants is for us to be the start of a flood of departures.
A client of mine has a second property in Italy where he spends six months of the year and has done for donkeys. He tells me the locals would love a referendum as they cannot wait to leave the Euro in particular and the EU as well. Why? It is simple, the EU and Euro has made them worse off.
Since the War, the Italian way of managing their economy has been to devalue their currency at regular intervals which in effect meant they were defaulting on their debts. Everyone knew it, which is why Italian Bonds paid sky high rates of interest. However, devaluation is not possible when you are in a common currency and although there is a chance Italy may default on some Bonds it is more likely they will have to issue even more to repay the ones maturing.
For the Germans the introduction of the Euro was the final piece in the jigsaw towards economic dominance and finally gave them a relatively weak currency to play with. This is one of the reasons why it seems that every second car on the road is from the “Fatherland”, and there is no longer any novelty in owning a BMW, Merc or Audi. However if we do see a move by the “weaker” countries out of the Euro and it became a northern European currency this competitive advantage would diminish. This is the last thing the Germans would want and they will do everything in their power to try and keep these weaker nations on board. They may find that easier said than done if the anti-establishment uprising continues.
I do not believe that Brexit will be a disaster. I keep reading about all of the jobs that will leave the City, but if that is the case why is the London skyline dotted with cranes to an extent that I cannot remember. I am also bored of UK politicians on all sides, and borders, trying to make capital either for their party or personally by criticising every announcement made. Perhaps they would be better advised to wait until there is something of substance to comment on. For me, as an investor, that day cannot come soon enough….