Tuesday, June 28, 2016

Brexit Thoughts ...

Here at Saelig Co. Inc. we distribute industrial electronic products like test & measurement equipment, oscilloscopes, powers supplies, etc. from more than 100 companies all over the world. Ten of those companies are British, so Brexit is of immediate interest to us!   The first impact, felt on Monday morning, was that the GBP dropped initially by about 13% but is now recovering:  From $1.50 to $1.31 at its lowest. It has ecovered to $1.34 at time of writing (-10.5%)  The current – but probably short-term effect is that goods from UK are cheaper and we will be able to price them even more competitively.  Traveling in the UK will be cheaper too.  The effect on the Euro has been much less severe – dropping from 1EUR = $1.14 to ~$1.10 or about 3.5%.  This makes our European suppliers – mostly German – more competitive too.

I believe that the UK hope in this referendum is that it can once again control its own laws and borders, but will negotiate the same free-trade arrangements with the rest of Europe as when it was a full memeber. That may or may not be possible, depending on the mood of EU partners.  In the long run, the global financial system is probably better with London politically independent of the European Union. European Union rules do not encourage financial competitiveness. In the Global Finance Competitiveness Indicator ranking—which measures local expertise, regulatory climate, and other factors—the EU performs dismally: six U.S. cities are ranked ahead of Luxembourg, the top EU city. Frankfurt, the financial capital of the EU, where the European Central Bank is situated, is ranked between Sydney, Australia, and Shenzhen, China.

Brexit will have its costs. The large drop in the value of the British pound has already taken place. Britain’s new leadership will need to maintain and expand economic freedom and open markets. But even if Britain’s new leaders introduce anti-growth policies and hurt their economy, the overall effect the U.S. will probably be modest.  For Americans - take advantage of the situation and take a UK vacation! Britain is more affordable than it has been in years.

Some reasons I think Brits chose in the majority to leave the EU:

1) Money Back:   Some UK taxes go the European Union. Some of that money comes back in subsidies to farmers, grants to universities, etc. In 2015, the UK’s EU gross contribution was almost £18 billion ($24B), but a budget “rebate” won my Margaret Thatcher in 1984 reduced that to £13 billion ($17.5B) – or about £200 ($268)  per Briton. The Treasury estimates that around £6 billion comes back to the UK in subsidies and grants, meaning that the net EU payments from Britain are just over £100 ($134) for every UK resident. Britain is presently the second biggest contributor to the EU budget after Germany.

2) Border Control:  EU members must allow all EU citizens to enter their country and work without restrictions. The “right of free movement” has allowed hundreds of thousands of Europeans to live and work in Britain. In the 12 months ending in September 2015, an estimated 257,000 EU nationals arrived in the UK. The Office for National Statistics estimates that there are more than 2 million EU nationals working in the UK.

3) UK  Laws Rule Again:  A number of British laws are passed and implemented because of decisions made in the European parliament.   In fact it has been estimated that 65 per cent of new British laws are made in Brussels.  The House of Commons Library states that from 1993 to 2014, a total of 231 Acts of Parliament were passed because of EU membership, 24% of the total. In 2010, the UK government estimated that about 50% of UK legislation with “significant economic impact” originates from EU legislation.

4) UK Courts With the Final Say:  Britain joined the EEC in 1972 and the UK Parliament then accepted that European law could have supremacy over UK law. That law is ultimately overseen by the European Court of Justice in Luxembourg. The court’s power has grown steadily, and the Lisbon Treaty gave it power over 135 areas of criminal justice policy. Britain has opted out of all but 35 of those measures, but it still participates in the European Arrest Warrant scheme, which gives the court the power to order EU nationals (including Britons) be extradited to face trial elsewhere in the EU.

7) No Need to Listen to, or fund, the European Commission:  The European Commission has the right to propose new laws and regulations. It employs around 23,000 officials. In 2011, a think-tank estimated that more than 10,000 Commission staff were paid more than £70,000 ($94,000).

8) UK Sets Its Own Tax Rates:  The EU wants to “harmonize” the rate of VAT and the goods to which it applies. VAT must be at least 15 per cent but can be cut to 5 per cent on certain specified items. EU-wide consent is needed for any changes.

9) Support British Companies:  EU single market rules discourage (prevent?) governments from giving financial support to private companies, ensuring “national champions” do not have a commercial advantage over rivals.  

10) Fish!  The EU’s common fisheries policy attempts to manage EU fish stocks by giving each nation’s fishermen given quotas for what they may harvest.  That forces up prices for consumers, forces fishermen to dump millions of dead fish back in the sea, and dramatically affects national fishing fleets.

11) Diabetics Are Banned from Driving   Though it's not currently being enforced, but it is a real directive. British Prime Minister, David Cameron mocked the directive at the Conservative Party conference in October.

12) No More Weird Rules.  In 2010 the EU said that food items could no longer be priced by the number (e.g.  a dozen eggs or 10 apples) and instead had to be priced based on kg weight. (Still in draft form but coming …)   Many other weird rules have been dictated by the EU, including the shape of bananas and forbidding the eating of pet horses.

The structure of the EU all along has been to appear that democratic decisions are being made when in fact much is created by an elite. The contempt for ordinary people exhibited by this elite was amply demonstrated earlier this month when European Commission president José Manuel Barroso declared that David Cameron's attempt to renegotiate Britain's relationship with the EU was doomed before it began.  An undemocratic EU might have seemed a good idea to some people in the 1950s but 60 years (and millions of pages of crazy EU laws) later people have decided otherwise.  

Most young people – who have never known a UK outside of the EU – voted to stay, but older folks - who remember the old Britain - want that back again.  Maybe the appearance of Sharia Law in Britain and a Lord Mayor who is dictating what adverts can appear on the Tube was the final straw …



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