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“It was a bright cold day in April, and the clocks were striking thirteen.”

George Orwell

Commentary & Analysis
Why stay UK?

“Given that the aim of the European Union is to eliminate democracy by reversing the result, as perceived by the European Union, of the Second World War—supposedly a victory for the sadly mythical ‘Anglo-Saxon model’—it is not surprising that Britain is a primary target and that the EU nomenklatura—and indeed the global nomenklatura— is so desperate to retain control over it. The ultimate intention is to establish anti-democratic rule, and the ‘Rhenish’ model of crony capitalism, globally. But Britain has been the low-hanging fruit. That is why it is so important for the world for Britain to be allowed to regain its freedom and to re-establish democracy.”

Bernard Connolly, Don’t Trust the European Union, International Economy

Whether you like him or not, and I do, Nigel Farage nails it once again in this clip from the European Parliament as he expounds on the dangers and failures of the EU—the look on the faces of German President Merkel and French President Holland are priceless.

One has to ask: What really does the UK have to lose if they decide to leave? Well according to Citron Zoakos, possibly the smartest global macro analysts in the game, here is what the UK has to lose:

If Britain votes to exit the European Union, it will be voting to get rid of the 13,000-plus acts, rules, and regulations of the acquis communautaire, but otherwise to continue Britain’s economic relations with the Continent.

And one wonders why the UK should love this “economic arrangement “ anyway considering it looks very one-sided in favor of Germany, based on the trade numbers as you can see in the charts below:

German Exports to the UK versus UK Exports to Germany Monthly: At current exchange rates (converting back to USD), the UK is effectively running a $4.4 billion dollar monthly trade deficit with Germany.

Now I think you can better understand why Angela Merkel’s’ resident “hit man,” aka Finance Minister Wolfgang Shäuble, says it will be “poison” if the UK leaves.

Is it any wonder why the UK trade deficit has done nothing but widen during its cozy nomenklatura relationship with the EU?

UK Visible Trade Deficit Monthly in GBP from Jan 1996-April 2016: Gulp!

Of course it is primarily the “little people” who feel this burden of real stuff. All those Eton grads are doing quite well in the “new” economy thank you!

The guy in the middle, circled, is none other than Honorable PM David Cameron with his Eton pals. Not thinking many calluses on the hands of this bunch.

So maybe you believe the UK was just an unfortunate victim of the global rebalancing triggered by the credit crunch and the EU has actually softened the blow for the UK. Well, let me attempt to disabuse you of that notion by sharing the next chart of Germany’s monthly exports. “Holy towering BMWs Batman!” Is it any wonder why Germany loves the EU?

This tower of exports leads to a whopping balance of trade for Germany—a county by far more dependent on exports for GDP growth than any other in the world.

To put some meat on the bones of explanation for this towering German trade surplus comes from Prof. Michael Pettis:

“As German savings rose, eventually exceeding German investment by a wide margin, Germany had to export the difference, which its banks did largely by making loans into the rest of Europe, and especially those countries that were financially ‘shallower’. Declining consumption left Germany producing more goods and services than it could absorb domestically, and it exported excess production as the automatic corollary to its export of savings.

“Of course the rest of the world had to absorb excess German savings and run the current account deficits that corresponded to Germany’s surpluses. This was always likely to be those eurozone countries that joined the monetary union with a history of higher inflation and currency depreciation than Germany – countries which we are here calling ‘Spain’. As monetary policy across Europe was made to fit German needs, which was looser than that required by Spain, and as German savings were intermediated by German banks into Spain, the result was likely to be higher wage growth, higher inflation, and soaring asset prices in Spain.”

The chart of the German trade balance above may help you understand why some people question the veracity of German politicians when they tell us of their “sacrifice” for the EU. German taxpayers are no doubt sacrificing, but as Bernerd Connolly says, the nomenklatura isn’t sacrificing; its reaping.

The question is: If the UK decides to leave, can Germany really afford to punish them for doing so? I share with you the brilliant answer from Citron Zoakos, also from the current edition of International Economy magazine:

“If the European leadership chooses to preserve UKEU economic relations, they will be signaling to the other members of the European Union that it is not necessary to accept the comprehensive supranational overlordship of Brussels in order to enjoy the benefits of international economic integration and free trade. But if, in order to whip into line the remaining EU members, the leadership decides to destroy the hitherto beneficial UK-EU economic relations, the EU leaders will be signaling that their true institutional interest is not international economic integration but the political power of supranational governance arrayed against national sovereignty and the democratic institutions that underlie that sovereignty.

“In opposing Brexit, the ideologues of political Europeanism argued to the British public that their Europeanism is motivated by their solicitous concern to preserve the benefits of international economic integration. If Brexit wins the referendum, these ideologues must either accept that international economic integration can also be served by strengthened national sovereignty without supranational governance, or they must resort to the unintended consequence of demolishing economic integration in order to preserve supranational rule.”