7 January 2016

The big ‘half a billion’ question for 2016


2016’s biggest question for half a billion people across 28 countries may be decided by a few swing voters in Britain’s northern cities. The arguments both for and against Brexit – Britain leaving the European Union – are compelling. This we know from the current stalemate in the opinion polls. Yet are the pollsters asking the wrong question? The bigger and more important point is whether Europe would be better off with Britain in or out? Framed in this way the debate is more one-sided.

Whatever its current economic rationale, the European Union essentially rose from the devastation of WW2 as a political bulwark against rising Soviet Communism. Not surprisingly, the 1989 Fall of the Berlin Wall has led many sceptics to question why a Cold War anachronism still exists? Others simply fear the replacement of one unfriendly, single-party, socialist bureaucracy with another based 1500 miles due west in Brussels. We all need an EU brand awareness that goes beyond the minutiae of a blue and yellow flag. If Britain is guilty of self-serving economic calculation over Brexit, the EU is equally guilty of failing to get across its big message, even to its own politicians.

This fundamental, if understated, principal and one that Europeans of all stripes have fought hard for is the establishment of an open society. Its enemy is fundamentalism in all its forms from Islam and Christian extremists to Marxist-Leninism and Fascism. No open society can tolerate the intolerant.

Europeans must take the long-view because the World outside is changing fast. The next 20 years will see the establishment of a Greater China, the rise of the Chinese Yuan as a major investment currency and potential military clashes between China and the US. Today, Europe is positioned poorly for all three.

Geopolitics teaches that controlling the geographical corridor between Europe and Asia, the route of the old Silk Road, is critical. China is already planning to exploit this heartland [One Belt, One Road] and will pour in vast economic resources. Her military are eyeing the South China Sea. Chinese trade deals have already been signed with resource rich Russia and Africa, and in one day more cash was given to Pakistan than has been promised for a decade of investment in Britain.

American business meanwhile is moving westwards to Asia and the Pacific and away from its Atlantic roots: California’s population is now 42% larger than New York State and New Jersey combined, compared to just 18% bigger in 2000. Self-sufficiency in shale oil is meanwhile coinciding with America’s growing disinterest in the Middle-East.

History also warns that Germany is essentially a Central European power with an easterly vision. A marriage between her manufacturing and Russian commodities has huge industrial logic. Without Britain’s balance and natural links to the US, the EU will inevitably be pulled eastwards. It is the rest of Europe that should be voting to keep us in, not us voting to leave! Let’s ‘Fixit’, not Brexit.

Michael J. Howell is Managing Director of CrossBorder Capital, a London-based financial research company that advises key investors Worldwide. Prior to founding CrossBorder in 1996, Michael was Research Head at Barings and Research Director at Salomon Brothers. He can be contacted via liquidity.com.