by Damon de Laszlo, ERC Chairman
Synchronised world-wide growth continues, and could be gathering pace. Last week visiting California, many investment analysts told me there was a growing increase in confidence and indeed US GDP numbers for 2018 are being revised upwards. While it’s possible that central bankers could precipitate a liquidity crisis, it is unlikely that this will happen in Asia or the USA. The politics of Europe, however, mean that the European Central Bank gives one some cause for concern.
While the European economy is picking up, the political problems of how Europe should be run and the conflicts between the member states, both philosophically and in these economic requirements, are worrying. As the imbalances between the member states continue to grow within the single currency area, the need to reform the banking system grows in urgency. The primary problem of the European structure is that there is no political control of the administration. Selecting a President, rotating every six months, means there is a lack of consistent leadership and the inability to develop cohesive long term strategy, means that the critical administrative functions, including the central bank, can be left rudderless.
The lack of control of the European central bureaucracy is evident in the Brexit negotiations. On the British side, while the negotiating stance is fraught with political infighting, it is at least elected representatives who are negotiating. In Brussels, the negotiators are unelected civil servants, with their own agenda, and whose interests do not seem to be primarily motivated by a concern for the economic prosperity of Europe, but more by the desires of the civil service establishment of Brussels.
When you look at their negotiating stance; to demand that the exit fee should be agreed before the start of discussions on the trade agreements is bizarre. Simplistically, it would be similar to walking into a restaurant and being asked to finalise how much you were going to pay for the meal even before you have seen the menu. The second line of the Brussels negotiating stance, to continue the restaurant analogy, is to keep demanding what you want to eat, again before seeing the menu. The approach seems to be motivated by the desire to derail the process using every method to slow it down and cause confusion, regardless of the potentially serious economic consequences to both sides.
Mrs May’s cool-headedness and determination has been remarkable. In the face of the very unseemly squabbles in her own cabinet and the extraordinary performance of the Labour and Liberal parties, she has kept her cool. Parliament seems to have forgotten that the concept of democracy, with all its faults, is that a majority vote carries the day. Whether one believes that being in the European Union is good or bad, the democratic outcome of a referendum was a vote to leave; members of Parliament who are trying to derail this position seem to have forgotten the basic fundamentals.
It seems that the business interests in Europe are beginning to have an influence on the negotiating position. Progress in the last weeks has been significant and, at the end of the day, negotiations will lead to agreements on the myriad areas that need to be sorted out to enable cross-channel trade to continue.
As an aside, one of the difficulties is that those negotiating on both sides have very little knowledge of how actual trade works. The documentation, the compliance rules and the security arrangements that cover the movement of goods are byzantine in their complexity.
While Brexit will progress, it is at least beginning to become less topical, which means that business decisions are being taken and business leaders are getting on with dealing with the issues of delivery of goods and services and expanding their companies’ capacities to meet growing demand. All this augers well for 2018, and probably 2019.
The investment communities around the world are still not whole-heartedly
optimistic, so one can feel relatively comfortable that we are not yet in a stock market bubble!
Best wishes for a quiet and Happy Christmas and an optimistic New Year.
Damon de Laszlo
18th December 2017