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Brexit is the first bell of Euro’s End

February 22, 2016

Brexit is the first bell of Euro’s End

by Lushfun

UK has been paying into the budget of European Union to the tune of about 15 billion euro. This is with the rebate which got lowered by Blair government. Balance of trade between UK and EU is about 230b pounds of exports for 290b pounds of imports for the last year. At an exchange of 1.27 Euro per Pound this comes out to 292b in exports and 368b in imports in Euros or around 76b euro net a year. It is extremely likely that as soon as UK leaves the competition that was suppressed by EU regulations in regard to what kind of tomatoe shapes can be exported within the common market or other non-tarriff barriers will slowly but surely gather speed. EU will not lose the market completely but they will have to compete and this will lower the overall deficit for UK.


The notion that service by the banks in London will be impacted is possible but unlikely. If the EU attempts to impose taxes on firms issuing bonds or equity in London the likelihood of success would be very low, since most would find a way around it. If they succeeded the costs for capital for those firms would move higher, and their ability to hedge by selling Forex or other contracts in London would also rise in cost. None of this would be beneficial for the firms nor their end customers. If you can’t buy a coffee contract without paying a financial transaction tax to the EU on the contract the cost will become imbedded for consumers through the supply chain.


Finally the biggest reason for UK leaving is the notion that non-Euro countries have to commit to Eurozone stability. The ESM and EFSM funds which essentially create backing by making non-Euro countries commit to back debt issued for the benefit of Eurozone bailouts.

“The EFSM issues bonds backed by all 28 European Union members and was used to help Ireland and Portugal.”

If one thinks about this long term, in the span of a decade or two at least there is a quick realization. If you are not in the Euro you are being forced to commit to it one way or another. Those commitments essentially pull you into the Euro by expanding its’ share in the incremental claims you issue and by implication decrease support for your national currency. After UK leaves and the budget contracts within the EU, there will be increased pressure to expand the Eurozone to keep it alive. At that point countries will be given some sort of ultimatum in regards to joining the Euro as promised ‘sometime in the future’ previously, or commit to it surreptitiously. Those commitments will become binding and more costly and eventually those costs will be far higher than joining the Euro. However, as other countries assert their sovereignty in regards to monetary means the Euro area will get backlash and eventual ultimatums with which it will not be able to cope. Visehrad (Poland, Czech Republic, Slovakia, Hungary) creates a common front for the countries to have an out in regards to Eurozone integration. Sure Slovakia is in the Eurozone but it has an out through the Czech relationship.


Be healthy & happy dear reader.



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