It is time for Project Grit. We warned over the final weeks of the campaign that a vote to leave the EU would be traumatic, and that is what the country now faces as markets shudder and Westminster is thrown into turmoil.
The stunning upset last night marks a point of rupture for the post-war European order. It will be a Herculean task to extract Britain from the EU after 43 years enmeshed in a far-reaching legal and constitutional structure. Scotland and Northern Ireland will now be ejected from the EU against their will, a ghastly state of affairs that could all too easily lead to the internal fragmentation of the Kingdom unless handled with extreme care.
The rating agencies are already pricing in a different British destiny. Standard & Poor’s declared that Brexit “spells the end” of the UK’s AAA status. The only question is whether the downgrade is one notch or two, and that hangs on Holyrood. Moody’s has cocked the trigger too.
Just how traumatic Brexit will be depends on whether Parliament can rise to the challenge and fashion a credible trade policy – so far glaringly absent – to safeguard access to European markets and ensure the viability of the City, and it depends exactly how Brussels, Berlin, Paris, Rome, Madrid, and Warsaw react once the dust settles. Both sides are handling nitro-glycerine.
Angry reproaches are flying in all directions, but let us not forget that the root cause of this unhappy divorce is the conduct of the EU elites themselves. It is they who have pushed Utopian ventures, and mismanaged the consequences disastrously. It is they who have laid siege to the historic nation states, and who fatally crossed the line of democratic legitimacy with the Lisbon Treaty. This was bound to come to a head, and now it has.
The wild moves in stocks, bonds, and currencies this morning were unavoidable, given the positioning of major players in the market, and given that the Treasury, the International Monetary Fund, and the Davos brotherhood have been deliberately – in some cases recklessly – stirring up a mood of generalized fear.
But let us separate the noise from what matters. This is not a ‘Lehman moment’. The sterling rout has not been as bad as some feared. You could almost say that we have had a miraculous reprieve, at least for now.
The pound has fallen by 6pc to €1.23 against the euro, slightly below where it was in April. This is a far cry from warnings of parity, never credible since the eurozone itself faces an existential risk if Brexit is bungled.
The slide against the US dollar has been steeper, but at $1.37 ‘cable’ is only down 4pc from its trading range over the last four months. The apparent violence of the drop was amplified by the upward spike hours earlier.
The FTSE 100 is down just 3.15pc, cushioned of course by the effects of devaluation on repatriated earnings. The broader FTSE 250 index has fallen 7pc. There are horror stories: house-builders Persimmon and Taylor Wimpey have crashed by more than 25pc; Barclays is off 17.7pc.
It is unpleasant but it is not a systemic financial crisis, and it is not global. The S&P 500 index of Wall Street stocks opened down 2.6pc, a bad day but not a drama. The warnings of inter-galactic destruction already look like a campaign hoax.
The yield on 10-year Gilts has dropped almost 29 basis points to an historic low of 1.08pc, the result of flight to safety, recession fears, and hopes of more quantitative easing. These collapsing borrowing costs expose the fallacy behind George Osborne’s ‘punishment Budget’.
There was never any chance that Parliament would enacted his demented plan to crash the economy with a violent fiscal squeeze when macro-economic logic called for the exact opposite. His credibility is shattered. He must go immediately.
The proper policy is to take advantage of these rates for a ‘growth Budget’, a fiscal investment stimulus of 2pc of GDP to carry Britain through the next two years of pain. We need trade experts. Recruit them.
Dangers certainly abound. Italian bank shares have crashed – Intesa Sanpaolo and Unicredit are down more than 22pc – and this may matter more than the parallel dive in UK bank stocks. Events of recent months have shown how hard it is for the Italian state to shore up its banking system under the constraints of EMU. It is no surprise that the bourses in Milan and Madrid have both dropped by around 11pc.
Yet the same voices of authority that so frightened us before the vote are now bathing us with words of soothing calm. Everything will be alright after all, said the Bank of England’s Mark Carney. British banks are stress-tested for Armageddon.
Capital buffers are ten times higher than before the Lehman crisis. Banks have raised £130bn of equity, and are sitting on £600bn of high-grade liquid assets. Mr Carney is ready with £250bn of liquidity, and foreign currency on demand. The ECB, the Fed, and the central banking fraternity are joining forces to douse the fire, as we all knew they would have to do.
The pro-Remain group TheCityUK already has a plan to limit the damage, insisting that the City can prosper outside the EU, provided the post-Brexit government launches a bonfire of red-tape, keeps the door open to foreign talent, and takes the lead in the G20, the IMF, the global Financial Stability Board and the Basel Committee.
They want unfettered access to the EU single market and passporting rights for the City, and this means either pushing for the Norway option of the European Economic Area (EEA), or a hybrid variant.
This safe-exit is a compromise, and an olive-branch to the EU since we would continue paying into the EU budget and accepting the EU Acquis. It would last until we have negotiated our bilateral trade deals with the rest of the world. It also means accepting the free flow of EU migrants for a while. This is incendiary, of course.
If Parliament imposes such an option, the UKIP base will erupt in fury. But UKIP has only one seat in Westminster and cannot dictate the outcome. Nor is it beyond the wit of man to come up with a formula to manage the scale of migration into the EEA. If EU leaders have any sense they will seek to find a way out of this imbroglio.
Precisely because the political mood is so tense, my preference is for a national unity government of all parties, especially the Scots and the Ulster Catholics, to come up with a negotiating plan. Since David Cameron has honourably offered to stay on as a care-taker, he should lead this emergency administration.
Some in Europe accuse the British people of strategic nihilism, of setting in motion the disintegration of the EU. It is true that French, Dutch, Italian, and Swedish eurosceptics are now agitating even more loudly for their own referenda, but voters are rising up across the EU in defence of national self-government and cultural ‘terroir’ for parallel reasons.
Brexit is not the cause and this is not contagion. The latest PEW survey shows that anger with Brussels is just as great in most of Northwest Europe as it is Britain, and in France it is higher at 61pc.
This referendum was never a fight between Britain and Europe, as so widely depicted. It was the first episode of a pan-Europe uprising against the Caesaropapism of the EU Project and its technocrat priesthood. It will not be the last.
Source: The Telegraph