Brexit – Six months on (and the swan song of the EU?)

To sea, to sea! our wide-winged bark
Shall billowy cleave its sunny way,
And with its shadow, fleet and dark,
Break the caved Tritons' azure day,
Like mighty eagle soaring light
O'er antelopes on Alpine height.
The anchor heaves, the ship swings free,
The sails swell full. To sea, to sea!

The swelling white sails of the British Galleon certainly looks pregnant with the crisp Zephyrus winds of opportunity, despite dire forecasts of hurricanes, warnings of shallow reefs and shouts of "beware dragons!" just before she unhitched from the caliginous shores of the EU. 

The Paris-based Organisation for Economic Cooperation and Development (OECD), Europe’s leading economic think tank, predicted in mid-2016 that a leave vote would cause significant reductions in Britain’s GDP growth in all three scenarios it envisaged. The OECD predicted that, again just before the referendum, assuming the UK was to remain in the EU, its economy will grow by 1.7% in 2016. On the other hand, in its April 2016 report, it predicted that a leave vote would lead to an estimated 0.5% shrinkage in GDP growth in 2017 and 2018. In September, when faced with unexpected growth in the UK economy immediately after UK voted to leave the EU, OECD grudgingly raised its pre-referendum estimate to 1.8% growth for 2016.

Compare the oracles’ predictions with reality. According to the Office for National Statistics, UK ended 2016 as the strongest performing of the world’s advanced economies (G7). Business activities in December hit a 17 months high with the composite PMI of all private sector activities including manufacturing and construction, rising to 56.7 (above 50 means growth). UK’s Economy grew by 2.2% in 2016, more than the six other leading nations, including the US, Germany, and Japan. In the last two quarters, the economy grew by 0.6 and 0.5% respectively.

The OECD wasn’t the only authority that had to do an about-face as gracefully as they can muster after their portentous and ominous prophecies before the vote have proven so utterly wrong. Goldman Sachs, Morgan Stanley and others have all revised their forecasts. In fact, the average forecast by economists monitored by the Treasury of a 0.5% growth for 2017, made in July 2016, has now risen to 1.6%. Not a trivial error.

According to PwC, one of the four largest auditors in the world, the UK’s growth is forecast to outpace any other major advanced economies over the next three decades with an annual growth of 1.9%. John Hawksworth, chief economist of PwC, suggest that post-exit from the EU, Britain’s “relatively flexible economy by European standards” would be an advantage. What’s this advantage? It is simply that, unshackled with the inefficient EU, the UK can see the vista of more than 100 other countries, including the top 10 economies with which the EU do not have free trade agreements with, with which it can trade, cooperate and prosper.

The EU is not only not Europe, it is, by its records and behaviour, anti-Europe. If it has stayed as a common market organisation for trade as in its first conception as the EEC, no one would have argued against it. But it has accrued for itself the mantle of an ever centralizing governing body, and Europe and its people have suffered under its ham-handed administration, which is increasingly clearly organized chiefly to maintain its own perpetuity. Another crisis is on hand and Greece and the Greeks will be suffering potentially more austerity. It is important to note that Greece’s debt to GDP ratio was 100% in 2000, when it gave up the Drachma for the Euro. When creditors noticed things were not sunny in 2009, it was at 127%. After three multi-billion euro bailouts, Greece now owes $320 billion and its debt to GDP ratio is 174%. Such a scenario was not unexpected. People such as the Nobel Laureate economist Milton Friedman predicted exactly this. A great essay he wrote, outlining the turmoils of today, 20 years ago, can be found here. The EU policies are not only not working, it is the medicine that sickens the patient.

It is also under-reported how significantly dire life is for the average Greek working class families, many of whom have turned to working on the black market in order to avoid paying 70% taxes that the EU and IMF has imposed. This situation is in part caused by the decision for unification of currency before unification of fiscal policy, and the adamant and primary drive for continental political integration that disallows countries in great financial strife to decouple, default and devalue, the usual process in getting out of such slumps. As such, Greece is doomed to be stuck in a spiral of increasing debt, increasing austerity, increasing unemployment and increasing depravity. A report found that major depression rates rose from 3-8% in the three years to 2011 and suicide rates rose by 35% between 2010 and 2012. Unsurprisingly, many educated Greeks have emigrated, taking with them essential skills and experience. 

And Greece is by no means the only EU country drowning in debt. According to Eurostat figures, five nations have debts larger than their GDP (with Italy at 132% and Portugal 129%), and 21 of the 28 nations have debts larger than the 60%-of-GDP limit set by the Maastricht Treaty. With 12 bailouts given to various countries since 2008, and EU’s share of world GDP forecast to drop from 15% to 9% in the next 30 years, it is bordering on naivety to suggest that the EU has been good for the continent. The one thing that can help invigorate the economy, the increase in free trade, is the one thing that the EU continues to fail to do. In effect, the heart of Europe, the fount of its heritage, is being deracinated by the distant and callous policies of a bureaucracy whose most dear interest is to maintain its lavish existence.

And lavish it is too, with the recent unveiling of its new €321 million headquarters in Brussels. This is in addition to many, many perks already enjoyed by the Eurocrats. Is it any wonder why the Eurocrats are so interested in maintaining the status quo? And where does the money come from that pays for all this? The tax payers of course, including those scraping a living in Greece, Italy, Portugal, Spain and other places struggling with debt so that the EU MEP’s can have their £415,000 worth of entitlements and allowances on top of their high salary and low tax. For example the ironically named ‘subsistence allowance’ or ‘per diem’ of £258 is paid to members of the European Parliament in cash without any need for receipts, just for turning up to work. Compare this with the average Greek salary estimated mid-2016 to be just over 1,000 euros a month. The ones who feel the pinch in the economic mire created by the bureaucrats are the working man and women, not the Eurocrats, who suffer no consequences for their ineptitudes. As the American writer Upton Sinclair once said, "it is very difficult to get a man to understand something when his salary depends on him not understanding it."

And that comes back to why the elites got it so wrong for so long and couldn't read the future as far as they could point. They were partisans, they did not suffer the consequences of their actions and they are distant from the people. Is it any surprise therefore that the political centre of Europe is shifting Right? In June, 2016, the Swiss Council of States (Upper House) voted 27-13 in favour of withdrawing its long-standing application to join the EU, after the Lower House also voted to withdraw 126-46. Anti-EU Geert Wilders in the Neatherlands and Marine Le Pen in France are both doing well at the polls pending elections this year. The Hungarian Prime Minister Orban is openly critical of the EU and Italy’s EU-skeptic sentiments have manifested in 3 out of its 4 main parties, with a snap-election likely this year. And this despite the EU's massive spending to propagate its own popularity. Whatever you think of their policy, it has to be said that their popularity is propelled in large part by the direct consequences of EU’s failing records and smug complacency.

If I were to be so audacious as to make a prediction of my own, I think that the political landscape is going to undergo dramatic changes in Europe. Unless the EU morphs dramatically, which I do not think it is capable of, it will fracture in the next decade. Who knows, I might get it nearly as right as the experts.