Barack Obama’s just been over in the UK, imploring us not to leave the European Union.
Remainers are in raptures. Leavers are in paroxysms of rage.
Personally, I think Obama has every right to speak his mind on the topic. If I was six months away from stepping down as president of the US, I couldn’t be bothered coping with another European drama either.
Because if the mere threat of “Grexit” was unnerving for Europe, think how rattling Brexit would be…
No wonder Barack Obama doesn’t want Brexit
As an outsider to American politics, I think Barack Obama seems OK. And if you compare him to his predecessor and his potential successors, he almost looks appealing.
Before any American readers write in correcting me on my foreign ignorance, I totally appreciate that this is an outsider’s point of view. I’m not au fait with the intricacies of your medical system, your tax system, or any of the other deep-seated nuances that shape a country’s politics. If I were, I’d maybe have a different take on things.
And if you’re still feeling irritable, just remember – your lot were remarkably easily impressed by Tony Blair, so foreign ignorance cuts both ways.
Anyway, I’m just making the point that I’ve got nothing against Obama and he’s got every right to pop over here and make his political views known. And if I were in his shoes, I wouldn’t want Brexit either.
Think about it. By the time of the referendum, he’ll have less than six months left in power. He wants to be focusing on his legacy and on getting his pal elected. The last thing he needs is Europe rocking the boat (again) while he’s hoping to go out on a high.
Brexit would gain him nothing, and might cause him a headache. The status quo keeps Europe bubbling under for a while longer. By the time it becomes a problem again, he’ll be working on his golf swing and writing his memoirs.
So why on earth would he want to say anything that might encourage a “leave” vote?
Will Britain really be the scariest place in Europe post-Brexit?
And it is really more about Europe than about Britain itself. A lot of the focus has been on Britain and what happens to us if we leave. There’s been plenty of doom and gloom on that front.
But as Percival Stanion of Pictet Asset Management notes in the Financial Times this morning, Europe should be equally – if not more – concerned by a British exit.
A crash in the pound is the current big fear. But it’s the wrong thing to focus on, says Stanion. There’s no particular reason for a mass exodus from the UK. “After all, foreign investors know that even if the UK were to leave, they will be paid in sterling. Their property rights and access to the courts… all the things that make owning UK assets attractive – would remain in place.”
Europe, on the other hand, faces losing “its largest export market” at a time when growth is wobbly and the region as a whole prone to recession (there’s one every six years on average, apparently). “Should a slump occur, none of the eurozone’s weak links will have sufficient fiscal ammunition.”
But the bigger problem is the political one. We’re often painted as the awkward squad – keen to break up an otherwise happy family of co-operative nations.
But of course, that’s nonsense. There are plenty of pro-exit people in other parts of the European Union. It just so happens that they don’t have a referendum coming up.
There are also a lot of populist political parties in Europe – on both left and right – that are keen to change their nation’s relationship with the EU or the eurozone. Already several countries in Europe are “between” governments, or facing uncertain elections.
By the way, it’s worth remembering that this isn’t purely down to the EU or anything else. Populism is a global phenomenon, and an understandable mass psychological reaction to the fallout from the great financial crisis.
You’ve got Trump and Sanders in the US, you’ve got a generalised hostility to mainstream parties in Europe – and even in Iceland, where they actually jailed their bankers and didn’t bail them out, you’ve still seen a massive populist reaction.
So don’t fall for anyone who argues that this is all about the “rise of the right” or the return of communism – this is a delayed reaction to the shock induced by the financial crisis, which pulled the rug out from almost everyone’s feet. It’s our collective psyche clutching for certainty and security once more.
Brexit could be the biggest threat to the eurozone
Anyway – so the point is that if Brexit goes ahead, other countries are going to be looking at leaving too. And when you think about it, that means there’s at least as much capital flight risk in the eurozone as there is in the UK.
After all, when Greece looked like leaving, investors feared a messy breakup, and drove sovereign bond spreads to record levels. As Stanion puts it: “It could be that euro-denominated securities, not sterling-denominated ones, turn out to be the weakest link”.
Of course, this is something that Matthew Lynn discussed in the latest issue of MoneyWeek magazine. ( Sign up here if you haven’t already done so.)
But how can you shield yourself from all this? Pictet’s solution is to buy what’s cheap right now, and also distant from Europe – in short, invest in emerging markets. I actually don’t think that’s bad advice at the moment. We take a look at one such market in particular in the next issue of MoneyWeek magazine, out on Friday.