The news this week is totally dominated by the Brexit vote and so is this edition of Blowout. How will Brexit affect the UK, the EU and the world economies? Will there be a sea change in UK energy and climate policy? How long might it take to complete negotiations for an orderly exit? Will the EU now start to unravel? Will the UK itself start to unravel with a Scottish independence vote? All this and more below:
Scotland last held an independence referendum in 2014, voting 55 to 45 percent to remain in the United Kingdom. Sturgeon’s Scottish National Party has maintained that it would hold another referendum if there were a “significant and material change in the circumstances that prevailed in 2014.” Thursday night’s vote was about as significant a change as you can imagine. The last time around, EU officials were skeptical about the idea that Scotland could declare independence and simply remain a member state, suggesting that as a new country, it would have to apply for membership and wait its turn along with Albania, Serbia, and other wannabe members. It seems very possible, though, that the eurocrats may be friendlier to the notion of Scotland keeping its membership this time around, if only to stick it to the English. The consequences for Northern Ireland, which voted 56 to 44 percent to remain and is the only part of the U.K. that has a land border with the EU, could be even more serious. EU integration has been critical to the peace that has mostly prevailed in the region since the 1990s, after years of sectarian violence. Thanks to the EU, Northern Ireland has been able to remain under British rule, while still enjoying free commerce and unencumbered travel to the Republic of Ireland. Additionally, Northern Ireland has received billions of pounds in funding from the EU, helping it attract growing tourist, IT, and film production industries, after decades of economic stagnation.
Nicola Sturgeon has put Scotland on course for a new independence vote by autumn 2018 to prevent the country following the rest of the UK out of the EU, as the shock waves from the Brexit vote threatened to bring an end to the United Kingdom. Scottish voters backed Remain by 62 per cent to 38 per cent, and the First Minister said it would be “democratically unacceptable” if the country was taken out of the EU against its will. While not calling for a referendum outright, the Ms Sturgeon said that the Scottish Parliament would begin preparing legislation for a second vote and indicated that it was “highly likely” that Parliament would back plans for a fresh plebiscite. “If Parliament judges that a second referendum is the best or only way to protect our place in Europe it must have the option to hold one within that timescale,” she said in a statement in Edinburgh on Friday morning. “That means we must act now to protect that position.”
Independents: Northern Ireland’s Remain vote prompts Irish union call
A UK exit from the EU in the context of Northern Ireland voting to Remain must prompt a poll on Irish unity, Sinn Fein has demanded. Sinn Fein’s national chairman Declan Kearney said the question of Northern Ireland remaining as part of the UK had now been brought into sharp focus. “We have a situation where the north is going to be dragged out on the tails of a vote in England,” he said. “That is a huge democratic deficit for our society, building on the existing democratic deficit of partition. The British Government have now forfeited its mandate to represent the north of Ireland in relation to the European Union.” He added: “We now have a situation where Brexit has become a further cost of partition, a further cost of the Union and Sinn Fein will now press our demand, our long standing demand, for a border poll.”
The United Kingdom’s historic vote to leave the European Union is emboldening far-right, anti-immigrant parties across Europe to push for their own referendums to leave the political bloc as an expression of independence and freedom. In France, Germany and the Netherlands, anti-EU leaders hailed Britons for voting to leave the 28-nation union. “Victory for Freedom! As I have been asking for years, we must now have the same referendum in France and EU countries,” Marine Le Pen, the leader of France’s anti-immigrant National Front party, wrote on her Twitter account. Beatrix von Storch, leader of the anti-immigrant and Euro-skeptic Alternative fur Deutchland party also celebrated with a tweet thanking Nigel Farage, leader of the anti-immigration UK Independence Party, which campaigned for the “Brexit.” Geert Wilders, the anti-immigrant and anti-Muslim member of the Dutch parliament and Freedom Party chairman, tweeted: “Hurrah for the British! Now it is our turn. Time for a Dutch referendum! #ByeByeEU” Similar calls have taken place in Denmark, Italy, Greece and Sweden, a sign of the deep disaffection for the EU at a time when European countries are coping simultaneously with weak economies and a flood of migrants who are taxing their social welfare systems.
With the UK again able to tailor financial regulation to its own needs, the City of London can prosper outside the EU. The most-traded currency in the City is the dollar. But the UK is not a state in the US – it has not had to become the 51st state in order to maintain its high share of international financial business denominated in dollars. Securities issued in many nations and in more than 100 currencies are bought and sold in London, and that will continue after Brexit. Of course, when they export to the EU, British companies must comply with EU regulation, whether the UK is in the EU or not. But is there any reason why the UK should not seek an arrangement with the EU like that of, say, the US, Australia or Canada? They flourish without belonging to the Single Market. Arguably, the UK does need special deals with the EU in such areas as cars, aerospace and food, but it should pursue its own interests. On no account must the UK pay any money to the EU for access to the Single Market, as Norway and Switzerland do. Nations benefit from free trade. The acme of free trade is indeed the absolute, unconditional and unilateral free trade pursued by Singapore and Hong Kong. There must be no doubt about Britain’s ability to establish a successful trade policy of its own outside the EU.
New York Times: How ‘Brexit’ Will Affect the Global Economy, Now and Later
The immediate effects of “Brexit” will flow almost entirely through financial markets. Economic shifts happen slowly; financial shifts happen overnight (literally, in this case). The truth is that the stock market declines that took place worldwide Friday are nothing to be too concerned about. The British stock market, as measured by the FTSE 100 index, was down 3.2 percent late Friday afternoon in Britain, above its levels of mid-June. That suggests that investors do not envision the Brexit hit to hammer corporate profits in the near future. But what is happening in the bond and currency markets suggests bigger problems are brewing. The 7.6 percent drop in the British pound against the dollar is indeed a seismic move — major currency pairs just don’t do that. Since 2012, the average daily move in the pound-dollar exchange rate is 0.35 percent. This move is 21 times that. Combined with a rally in British government bonds (and consequently lower interest rates), the currency shift will mean a burst of inflation for British consumers as imported goods become sharply more expensive. It will also make the nation’s export industries more competitive (for the moment, at least).
Business Insider: Brexit will cause wide-spread ‘contagion’ in Asia
Britain’s vote to leave the European Union is going to cause widespread “contagion” across the globe, with Asia’s markets and economies being hit hardest, according to research from Japanese bank Nomura. Being a Japanese bank, Nomura is clearly heavily focused on the Asian markets, and as a result of the Brexit vote has not only predicted more monetary easing, but also cut all of its forecasts for growth in Asia’s main economies in 2016 substantially. Here is the chart from the bank:
Australian: No lasting global Brexit impact
Britain’s vote to leave the European Union won’t have a lasting impact on global financial markets and interest rates, said John Edwards, a member of the Australian central bank’s policy-setting board, Friday. In an email to The Wall Street Journal, Mr Edwards said it was a “very bad and misinformed decision for the UK,” that could see years of weaker UK growth because of uncertainty over investment, and especially over the future of London as a financial center. “But I also think most of the pain and difficulty in this decision will be borne by the UK and not by the rest of the world. The UK is not a sufficiently large economy that a set-back to growth there will have much influence elsewhere.” Mr Edwards added that even prolonged negotiations over the UK’s exit from the EU, or a long leadership crisis, shouldn’t affect trade, investment or output across the remainder of the EU, China, the U.S. or Japan.
Bloomberg: Oil Tumbles After Brexit Vote
Oil tumbled with most commodities amid a global flight from risky assets after the U.K. voted to leave the European Union. Whether the rout lasts depends on how world governments deal with the turmoil. Futures dropped 4.9 percent in New York and London, the biggest decline in four months. Global equities plunged, while safe-haven assets such as the dollar and gold surged. UBS AG said traders will soon focus again on the re-balancing of the crude market as a global surplus fades, while weighing any lasting impact from the U.K.’s decision on the world economy and oil demand. “The initial impact is all about risk aversion,” said Michael Wittner, the New York-based head of oil-market research at Societe Generale SA. “We’re getting big moves now but there will probably be little impact, if any, in the longer term.” West Texas Intermediate for August delivery dropped $2.47 to $47.64 a barrel on the New York Mercantile Exchange. It’s the biggest decline since Feb. 9. Brent for August settlement fell $2.50 to $48.41 on the London-based ICE Futures Europe exchange. It’s also the biggest drop since Feb. 9.
A while ago France’s National Front (FN) leader Marine Le Pen said that if the UK voted to leave the EU, it would be like the Berlin Wall falling in 1989. She was right. Brexit is a momentous event in the history of Europe and from now on the narrative will be one of disintegration, not integration.That does not mean that the EU will fall apart, or even that another country will leave, which is highly unlikely in the foreseeable future. But the centrist politicians who run nearly every EU member state will henceforth be on the defensive against the populist forces who oppose them and the EU. At the top of the EU there are two competing approaches to the future of Europe. The European Commission, led by President Jean-Claude Juncker, believes in further integration. It generally seeks to respond to crises by pressing member states to accept “European” solutions that involve more powers for EU institutions.But the President of the European Council, Donald Tusk, takes a different line. In recent weeks he has repeatedly warned that more centralisation would turn citizens against the EU. “Obsessed with the idea of instant and total integration, we failed to notice that ordinary people, the citizens of Europe, do not share our Euro-enthusiasm,” he said.
EU governments have piled pressure on the UK to leave the bloc as soon as possible, saying talks on the UK’s exit must begin promptly and urging a new British prime minister to take office quickly. As Europe scrambled on Saturday to limit the damage from the momentous Brexit vote, however, there seemed little it could immediately do to force Britain to speed up the pace of its departure from the 60-year-old bloc. Meeting for emergency talks in Berlin, foreign ministers from the EU’s six founding member states demanded the earliest possible start to the Brexit process. France’s foreign minister, Jean-Marc Ayrault, said Britain must trigger article 50 of the Lisbon treaty, the procedure for leaving the EU. The German foreign minister, Frank-Walter Steinmeier, said the ministers “join together in saying that this process must begin as soon as possible, so we don’t end up in an extended limbo period”. The German chancellor, Angela Merkel, speaking separately at a news conference in Potsdam, said that it “shouldn’t take forever” for Britain to deliver formal notification that it wants to leave the EU, but she “would not fight over a short period of time”. Much as the EU might like Britain to go fast, there are few legal means to compel it to start the process of leaving. “There is no mechanism to compel a state to withdraw from the European Union,” said Kenneth Armstrong, professor of European law at Cambridge University.
Radio Free Europe: Russia Revels In Brexit Vote
Russian politicians, journalists, and nationalists are reveling in the United Kingdom’s historic vote to leave the European Union, banking on a Brussels more amenable to Moscow, and casting Brexit both as a sign of Europe falling apart at the seams and of waning U.S. influence. Russian television stations spoke of a victory for “Little England,” cast the referendum as a “real nightmare for Brussels,” and carried images of Nigel Farage — the leader of the populist, anti-immigration U.K. Independence Party (UKIP) — drinking beer and declaring a “victory for ordinary people, a victory for decent people.” Russian ultranationalist Vladimir Zhirinovsky hailed the vote as a “heroic deed” by the British people, telling journalists that “agricultural, provincial, working Britain has said ‘no’ to a union created by the financial mafia, globalists, and the rest of them.” The flamboyant politician predicted that “after the British leave, NATO will collapse, Schengen, the euro” before declaring: “Long live the ruble and the development of Russian ties with all the democratic countries of Europe!” Communist Party chief Gennady Zyuganov, too, prophesied a chain reaction in Europe, predicting that France, Italy, and the Netherlands would be next to pull out of the EU.
One oft-voiced concern is that the departure of Britain — which has been a climate leader within the bloc — could weaken the E.U.’s climate ambitions, on top of the general chaos expected to ensue as Brexit now unfolds (which will surely distract all parties from climate policy). “The UK has generally argued for stronger action on emissions within the EU, so its absence will make it more difficult to counter the arguments of those Member States, such as Poland, which want slower and weaker cuts in emissions,” said Bob Ward, policy and communications director of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science. And then there’s the added complexity and uncertainty that now arises when it comes to determining how the E.U. will meet its ambitious climate targets and orchestrate the complex dance it must undertake to formally join the Paris climate agreement, said Andy Jordan, a professor at the Tyndall Center for Climate Change Research at the University of East Anglia in England. But with Britain’s pending departure, it’s not clear how this is going to work.
The UK has recently abandoned (or drastically cut in the case of PV FITs) its past renewable energy subsidy schemes and the country’s electricity sector post-2014 is governed by the Electricity Market Reform (EMR). Based on the EMR, all electricity investments are publicly subsidized: the fossil-fuel sectors receive subsidies via the capacity market and the renewable energy sector via the Contracts for Difference (CfDs) scheme. The implementation of the EMR in the last two years has shown the government is not interested in renewable power development. It has run only a CfDs auction dedicating a fraction of funding compared to the capacity market, while in addition it is about to support the building of a nuclear power plant, further supporting the centralized energy system of the past. What the referendum result adds is that it frees the UK government from its obligation to meet the EU-set renewable energy targets. At the same time, energy markets in the rest of Europe move in opposite direction than the UK. EU countries work towards an internal EU energy market, build electricity interconnectors, decentralize their systems and rely on each other to achieve higher penetration of renewable energies and a stable grid. UK’s post-Brexit energy sector will be left in the continent’s corner, meddling though the subsidies that allow it to keep its fossil-fuel fleet running.
Climate Change News: Will UK government approve 2030 climate target?
The first climate test of the UK’s new politics comes next week, when ministers are due to approve greenhouse gas cutting targets through to 2030. Government advisors say the UK should aim to cut emissions 57% on 1990 levels by 2030, based on a 52% cut in the mid-2020s, with a decision due by 30 June. Four-year carbon budgets are legally mandated under the 2008 Climate Change Act, but it’s a piece of legislation long detested by many in an emboldened and swelling Brexit camp. With government approval already delayed due to the referendum vote, Labour’s climate envoy Barry Gardiner said he has “huge concerns” over the budget’s future, despite an assurance from energy minister and leave supporter Andrea Leadsom it would be signed off. One private briefing by a London think tank in May warned of “opportunistic attacks on clean energy and climate policy” in the event of a vote out, given the climate sceptic views of many in the leave campaign. Those could yet intensify through the summer. With David Cameron stepping down as prime minister, Boris Johnson is the bookies favourite to assume office in Number 10 in October. He has previously warned of a mini ice-age and suggested the 2015 Paris climate deal was agreed because of the unusually warm weather last December.
National Geographic: Why Brexit Freaks Out So Many Scientists
The decision has dismayed scientists in the United Kingdom and across Europe, as it stands to disrupt scientific funding and the United Kingdom’s stature in the European and international research communities. “It’s depressing, but the uncertainty doesn’t help,” says Philip Jones, research director of the University of East Anglia’s Climatic Research Unit in Norwich, England. “I just hope that science doesn’t get forgotten in all of this.” The pending breakup has scientists concerned that the U.K. could suffer a brain drain of researchers, either because their funding suffers or because the loss of the EU guarantee of free movement across member states causes scientists to lose their status in the U.K., or to not feel welcome. “My main concern in the big picture is potential damage to the U.K.’s reputation as a destination for top-flight researchers,” says Myles Allen of the University of Oxford’s Environmental Change Institute. “Researchers put a lot of emphasis on the ability to recruit and ability to travel, and if these changes affect our ability to recruit the best and brightest of the world’s academics, then we’re in trouble.” Also at stake is European funding for the United Kingdom’s research universities, which totals more than a billion pounds (1.37 billion dollars) per year.
The European Investment Bank will fulfill all contracts signed for UK project before the Brexit vote, which will end the country’s membership of the EU. The EU bank has loaned more than €7.5bn to UK renewables projects over the last 10 years – largely offshore wind and grid – and said the status quo would apply until official withdrawal. “We expect the UK shareholding in the EIB and EIB lending in the UK to be one of many issues to be discussed in withdrawal negotiations,” said the bank. “Any contracts signed by the EIB will be respected.” It added: “We expect the UK to remain a shareholder in the EIB with a 16% shareholding until a withdrawal agreement in implemented.” The bank most recently committed £525m to help finance SSE’s 588MW Beatrice offshore wind farm in the far north of Scotland.
French utility EDF on Friday confirmed its commitment to build a nuclear plant at Hinkley Point following Britain’s vote to leave the European Union. The 18 billion pound ($24 billion) project in southern England is one of the largest French investments in Britain and a final decision has been repeatedly delayed since it was first announced in Oct. 2013. “EDF confirms its commitment to the Hinkley Point project, which continues,” an EDF spokeswoman said on Friday. CEO Jean-Bernard Levy told reporters in France that the Brexit vote had no impact on the strategy of EDF and its UK subsidiary, according to a translation of his comments provided by EDF’s British unit EDF Energy. He said EDF’s business strategy was not linked to Britain’s political affiliation with the European Union, and therefore EDF has no reason to change it. Levy also played down any negative impact from the fall in sterling after the referendum result.
Boris Johnson has been urged to keep a promise made during the Leave campaign to axe VAT on energy bills. The former Mayor of London made the pledge to scrap the five per cent tax on fuel bills, along with fellow Leave campaigners Michael Gove and Gisela Stuart during the campaign. Mr Johnson’s comments were made after Energy Secretary Amber Rudd and the Remain campaign team warned consumer bills would rise if the UK quit Europe. The Leave team’s statement said: “The least wealthy are hit particularly hard. The poorest households spend three times more of their income on household energy bills than the richest households spend. “As long as we are in the EU, we are not allowed to cut this tax. When we Vote Leave, we will be able to scrap this unfair and damaging tax. It isn’t right that unelected bureaucrats in Brussels impose taxes on the poorest and elected British politicians can do nothing.”
The widely-regarded frontman of the successful Vote Leave campaign, (Boris) Johnson is a favorite to take the nation’s helm in October when current Prime Minister David Cameron steps down in the wake of Thursday’s vote. And since the next U.K. general election isn’t until 2020, he’ll likely be sticking around for awhile. Environmentalists had expressed deep concern with the thought of the U.K. leaving the EU, often citing the tendency of the “Leave” camp to deny climate science. BoJo himself has climate views that have been described as “an embarrassment to London’s scientists.” His closest climate consultant is Piers Corbyn, a fierce proponent of global cooling (apparently a thing that people still research). Johnson previously suggested Britain was witnessing the onset of a mini-ice age. Yet the former mayor is also a previous deputy chair of the C40 Climate Leadership Group, and he recently declared that it is “vitally important that world cities unite and work together to mitigate climate change.” As the Brits would say, what in blazes is going on? Just as Donald Trump signed a public letter urging climate action back in 2009, Johnson appears to adjust his language as a function of political convenience. It’s hard to know what he truly believes.
Wall Street Journal: Trump Sees Brexit as Positive Sign for His Presidential Campaign
Donald Trump, celebrating the U.K. vote to leave the European Union, took the historic decision as a sign that the world is awash with nationalist, anti-elite sentiment that will propel his candidacy in the U.S. The British vote came at a time when Mr. Trump’s presidential campaign has been faltering in polls, and questions were being raised, by allies and adversaries alike, about the strength of the anti-immigrant, populist wave that is carrying him to the GOP nomination. Developments in Britain emboldened Mr. Trump, who happened to be in Scotland when the results were announced, to declare that the wave of discontent is international and not fading. His Democratic rival, former Secretary of State Hillary Clinton, argued that the vote is the latest tumultuous chapter in world affairs that calls for a tested leader like her, not an unpredictable neophyte like Mr. Trump.“This time of uncertainty only underscores the need for calm, steady, experienced leadership in the White House,” Mrs. Clinton said. Meanwhile, President Barack Obama acknowledged that the British vote reflected deep undercurrents of economic distress that reach across the Atlantic. “Yesterday’s vote speaks to the ongoing changes and challenges that are raised by globalization,” Mr. Obama said at an entrepreneur’s event in California on Friday.
Across the United Kingdom on Friday, Britons mourned their long-cherished right to claim that Americans were significantly dumber than they are. Luxuriating in the superiority of their intellect over Americans’ has long been a favorite pastime in Britain, surpassing in popularity such games as cricket, darts, and snooker. But, according to Alistair Dorrinson, a pub owner in North London, British voters have done irreparable damage to the “most enjoyable sport this nation has ever known: namely, treating Americans like idiots. When our countrymen cast their votes yesterday, they didn’t realize they were destroying the most precious leisure activity this nation has ever known,” he said. “Wankers.” In the face of this startling display of national idiocy, Dorrinson still mustered some of the resilience for which the British people are known. “This is a dark day,” he said. “But I hold out hope that, come November, Americans could be-come dumber than us once more.”
RA note: I hold both American and British citizenship, so this makes me at least “half-dumb” whatever the outcome of the US November elections.