Posts Tagged ‘Brexit’

Brexit: Britons call the bluff on clueless media

June 26, 2016

The mood before the Brexit in the media as well as the stock markets was one of cautious optimism.  Yes, the referendum was predicted to be close but surely, surely, voters would exercise the sensible, prudent option.  Tried and tested.  After all, who wanted another 2008, right?

In this general vein, CNBC TV18’s Lata Venkatesh made an observation that apocalypse is not a frequent occurrence in the markets and the last such was 2008.  Usually, and she cited the example of the Grexit that wasn’t, politicians got together to resolve a crisis in the eleventh hour.

There was something in that statement that convinced me to expect a Brexit when results would be declared on Friday and to pull out equity holdings in advance.  Let me  break it down now:

  1.  Yes, politicians may resolve a crisis at the brink but there is little they can do in a referendum.  So, no, Brexit had the potential to be yet another apocalypse.  Just as US govt erred in letting the Lehman Bros fail, British Prime Minister David Cameron had already erred in agreeing to a referendum and thus leaving himself at the mercy of events he could not control.
  2. The cautious optimism belied a lack of understanding of how voter turnout works.  I can excuse Western observers not used to the chaos of multi party democracy and gatbandhan politics that we Indians revel in but Indian journalists, including ones who sport fake American accents, should surely have been more clued in.  The point is this: only low turnout in England (outside London, that is) could have saved the Remain campaign.  High turnout would indicate that people who wanted out of the EU had turned up to vote.  Just as how high voter turnout usually, though not always, indicates anti incumbency in Indian elections.  Expecting people to turn out in large numbers to preserve status quo reveals either a lack of understanding of how voters behave or an overestimation of the benefits of EU to the UK.
  3. Grexit did not trigger a crisis in the markets because Greece was mouselike in its haplessness against the might of the European Commission-IMF-ECB troika. Brexit was a whole other matter and the third largest economy leaving the EU would be disastrous news for the EU, firstly, and, secondly, possibly trigger an exodus of other nations disgruntled with the management style of the EU.

I’ll address the last point in a bit.  But before that, let this be a lesson with regard to the media’s behaviour.  When they all display rare unanimity on an event that is in fact uncertain and ambiguous, they are very likely to be dead wrong.  Further, people in the media have a terrible habit of opining on everything so make sure you know what their speciality is and disregard their advice on other matters.  Yes, I am referring to the apparently reliable and erudite Lata Venkatesh here.  Listen when she’s talking about Indian monetary policy or breaking down the IIP.  But she’s no psephologist and she just proved it in the run up to the Brexit.  I have nothing against opinions per se.  People may air their opinions freely except that when appearing on TV, they ought to couch it with a suitable disclaimer to take it with a pinch of salt where it does not pertain to their field of expertise.

Now, as to the management style of the EU, which is my lengthy post script.  What would you do if you lost a long time and valued customer?  You would of course do your best to persuade him/her not to end the relationship.  If he/she was hellbent on a break up, you would respect the decision and agree to be friendly in parting.  If you instead badmouthed your customer for leaving, wouldn’t you expect to be fired by your boss?  Apparently Wolfgang Schauble, Finance Minister of Germany, doesn’t think so.  He didn’t lose the opportunity to rebuke Britain, a democratic nation, for exercising its choice and warned of taking tough action as a deterrent to other EU nations against choosing to leave the EU.

Excuse me, but Britain have the right to choose to end a relationship.  A Brexit in this case does not amount to a Greece-style default.  In fact, by threatening to punish Britain for merely exercising their free will, Schauble only lives up to the common complaint against EU made by Euroskeptics: that the EU is undemocratic.  The common sense thing to do here would be to learn a lesson from this debacle, make the divorce with Britain smooth and painless for all concerned and reach out to other nations and listen to their problems so that the EU doesn’t break up.  But then, whoever accused economists of possessing that elusive thing called common sense! I wouldn’t bet against this being the beginning of the end of the EU though it would be a sad day when that happens.

 

 

 

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