An Amusing Look At Brexit Scare Stories Versus What Actually Happened

TUESDAY, APR 20, 2021 – 03:30 AM

Authored by Mike Shedlock via MishTalk,

Apart from a short-lived disruption of trade flows Brexit has been a macroeconomic non-event.

So Much for the Brexit Scare Stories 

Contrary to widespread fearmongering, the UK did not fall to pieces as a result of Brexit.

Wolfgang Münchau, the avid pro-remain, pro-Europe founder of Eurointelligence writes So Much for the Brexit Scare Stories.

The collapse in UK-EU trade after January 1 was widely reported. What has not been reported nearly as much is that UK exports have fully recovered.They were up 46.6% in February after falling by 42% in January. Imports are not there yet. They were up 7.3% in February after a fall of 29.7% in January. The one prediction I am happy to make is that they will recover too. What these and other numbers are telling us is that even this bit of the Brexit scare stories will not come true. If you look at the latest IMF data and projections in the graphic above, you don’t find a discernible macroeconomic effect of Brexit in the first ten years after the referendum. UK growth fell by more last year than eurozone growth, but this will be offset by higher growth this year. The future prosperity of the UK will depend to a large extent on the future policies of the UK government – Brexit or no Brexit.

I am not sure Münchau has the recovery side correct just yet. After a 42% plunge it takes a 72.4% gain to get back to even.

After a 29.7% decline it takes 42.2% gain to get back to even.

Yet, Münchau has the right idea. 

And my position all along was that both sides would suffer but ultimately the EU more. So far I believe I am on target.

OK, I did not foresee that the initial collapse in UK exports would be greater than the UK’s collapse in imports (with the EU the biggest contributor). 

But some of that collapse was the EU purposely making things difficult. 

Meanwhile, EU exports to the UK have a much further way to go.

Why the Bad Estimates?

Münchau discusses three reasons.

  1. The first is political capture by official forecasters. The UK Treasury and the Bank of England were, of course, not neutral players.

  2. A second group got it wrong because they allowed their political preferences to take over their economic judgments. 

  3. A third group, largely economists, got it wrong because they relied on bad models. There was an overlap of that group with the first and second group, but this one is worth identifying separately. I am talking about models based on long-term trade flows. As Brexit introduces a small degree of friction into physical goods trade, and quite a lot more friction into financial services and agricultural trade, these models predicted a long-term welfare loss. But these models are one-eyed. They only saw what might be lost. 

Regarding point 3, Münchau notes events and technologies intrude. 

“In the future, we will not only be trading different products, but an increasing proportion of trade will come in the form of data. This is an area in which the UK could benefit from regulatory divergence from the EU.”

Who Is Winning the AI Race: China, the EU, or the United States?

report from the Centre for Data Innovation looking at qualitative criteria shows that the dynamics favour the US in particular. The US is leading on all the key criteria – talent, research, development, hardware, adoption and data – followed by China. The EU had some successes when it comes to the publication of academic papers, but is lagging behind both the US and China in all the other categories. The report concluded that Brexit would diminish the EU’s AI capability further.

Alas, Münchau sticks with his pro-EU stance

I am not making the argument that Brexit will be an economic success. I don’t think it will. The best economic argument against Brexit is the one that was never made: that a UK government under either Labour or the Conservatives is unlikely to make best out of the opportunities for regulatory divergence. 

Nonetheless, his conclusion is accurate.

The forecasts of unmitigated gloom, however, have been wrong and deceitful. When economists failed to predict the global financial crisis, they did not so out of malice or political bias. But their Brexit forecasts were not an innocent mistake – nor will they be remembered as such.

I strongly disagree with the pro-Europe rah-rah take from Eurointelligence.

However, when it comes to actual discussion of what’s going on (vs what they want to happen), the publication generally provides very practical and honest insights.


Laschet will become Germany’s leader of the Christian Democratic Union and a candidate for Chancellor

Conservative Laschet Will Be German Ruling Party’s Candidate For Chancellor In First Post-Merkel Vote

TUESDAY, APR 20, 2021 – 08:37 AM

Following a series of disappointments that has seen a string of would-be successors to Chancellor Angela Merkel rise and fall, Germany’s Christian Democratic Union, the dominant party in the country’s ruling coalition, has finally chosen a successor to the long-ruling Merkel.

On Monday, Conservative Armin Laschet put an end to a messy standoff over the future of Germany’s most powerful political party when he clinched the nomination to run for the chancellorship, signaling that, after 16 years of Merkel’s centrism, Germany might be heading in a more conservative direction.

Laschet, who, as leader of the CDU, is firmly entrenched within the party establishment, fended off an upstart challenge by Markus Soder, the minister-president of Bavaria and leader of the Christian Social Union in Bavaria, which serves in a ruling coalition with the CDU.

With rising fears about the liberal “Greens” potentially stealing power away from the German political establishment, Bloomberg noted that By picking the 60-year-old moderate, Germany’s conservatives are “foregoing Soeder’s greater electoral appeal and making a potentially risky bet that Laschet will be able to lift his flagging poll numbers, even as the Greens close in.”

Outside the ruling coalition, the Greens already have the biggest presence in the Bundestag following the parliamentary vote in 2019.

Source: Politico

In a statement acknowledging Laschet’s victory, Soeder – never one to skimp on the dramatic flourishes – proclaimed that “the die is cast”.

“The die is cast: Armin Laschet will be the chancellor candidate of the Union,” Markus Soeder, leader of the Christian Social Union (CSU) Bavarian sister party of Laschet’s Christian Democrats (CDU) told a news conference.

“The CDU met yesterday and decided. We accept that, and I respect that,” Soeder said, ending a damaging rift in the CDU/CSU alliance known as ‘the Union.’ “I called Armin Laschet and congratulated him. I told him that we as the CSU accept it. We offered him our full support. We will support him without a grudge and with all our power.”

As for the Greens, Annalena Baerbock, a 40-year-old political scientist and foreign-policy expert, was named the party’s first official chancellor candidate on Monday. She called out the conservatives for all the “mudslinging” that has taken place during the contest so far.

As analysts try to parse what all of this means for the ruling CDU, Bloomberg pointed out that the fact that Germany’s dominant party wound up in such a mess with just five months to go to polling day is a testament to the difficulties of moving past the 66-year-old Merkel, who has governed for 16 years and dominated the CDU for a generation.

Source: Bloomberg

While it’s still on track to be the biggest party in the next parliament in the latest polls, the CDU-CSU is heading for its worst-ever result in a federal election and is facing a challenge by the Greens to become Germany’s strongest force. That leaves Laschet with little time and little margin for error.

Another scandal at Deutsche bank as director Schutz implicated with insider trading (selling) Wirecard shares, as BAFIN refers to authorities in a criminal complaint.