Monday, 20 March 2017 09:56

So, Brexit Is Now Almost Official. Is There Still Risk in Czexit, Pexit, Frexit Through EU referendum CONTAGION? Featured

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BREXIT is now official (almost), and it will be very expensive for Britain. Now, the question that so many fail to ask, "How expensive will it be for the EU?" Here are some more questions:

  1. Will EU members such as Ireland, France and Germany be able lure enough talent from London to endanger their financial centre status?
  2. Will the UK use the nuclear option, turn into tax haven haven and then suck the capital out of the EU?
  3. How well can the EU handle losing it's 2nd largest economy?
  4. Will the EU lose any more economies? After all, those on the periphery are looking hard and if the UK shows a net benefit of any fashion, look out below. That means the EC has to negotiate hard, causing the UK to return the favor. That tax haven nuclear option is looking more and more likely and appears to already have a contigency in the works. 

This is an article I wrote using recycled snippets from as far back as 2010... 

So, Brexit. And... Czexit, Pexit, Frexit as EU referendum CONTAGION sweeps Europe amid political quake.

EUEXit gains steam1

EUEXit gains steam

Go to 5:38 and you will see I predicted this day exactly 3 months ago. The accuracy is uncanny...

 

I also called it in 2010 as well. Reference Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!, to wit:

What about the UK?

I'm glad you asked. We just finished our UK analysis (subscribers, see UK Public Finances March 2010 2010-03-24 09:32:01 617.23 Kb), and the Greek theme has continued into the land of the Brits.

uk_economic_estimtes.pnguk_economic_estimtes.pnguk_economic_estimtes.png

... and in terms of government balance over-optimism???

uk_gaovernment_balance_projections.pnguk_gaovernment_balance_projections.pnguk_gaovernment_balance_projections.png

The UK government’s projections are based on real GDP growth of 1.3% and 3.5% in 2010-11 and 2011-12, respectively while the (extremely and unrealistically optimistic) consensus estimates stand at 1.2% and 2.1%, respectively. The latest estimates announced by the EIU (Economist intelligence unit) in March 2010 are even lower at 1.2% and 1.5% for 2010-11 and 2011-12, respectively. The European Commission has also raised similar concerns with the Commissioner for Economic and Monetary Affairs, Olli Rehn, criticizing governments after scrutinizing the strategies of 14 countries, including Germany, France, Italy, the U.K. and Spain, that “their budget projections were based on favorable macroeconomic assumptions after 2010 that may not materialize” (stated in a press article on March 18, 2010)
Raising concerns on the UK, the European Commission also stated that “The U.K. won't meet the EU's recommended target of reaching a 3% budget deficit by 2014-15, and projections for economic recovery may also fall short. Details on how the U.K. government, whose budget deficit is expected to hit 12.7% in the current financial year, will rein back its spending are also lacking. The absence of detailed departmental spending limits is a source of uncertainty”.

Continuously rising fiscal deficit has led to a continuous increase in the government total debt, which increased from 43.3% of GDP in 2007-08 to 72.9% in 2009-10. Moreover, according to EU Commission estimates, after Ireland, the UK is poised to incur the worst deterioration in the gross debt ratio in the EU, from 44.2% of GDP in 2008 to 88.2% of GDP in 2011. Though the average maturity of UK’s debt is considerably higher compared to other nations (thus no refinancing risk in the near future), the expanding interest burden is exacerbating the already strained fiscal deficit.

Moreover, rising debt not only restricts government’s fiscal stimulus and support to the economy, but is also forcing the government to undertake sharp fiscal consolidation measures to moderate the adverse impact of rising interest expenses on the fiscal deficit. This is bound to have an internal deflationary effect.

The government expects an increase in its debt from 55.5% of GDP in 2008-09 to 90.9% in 2012-13. In absolute terms, the government debt is expected to grow from £796.4 billion in 2009-10 to £1,486.2 billion in 2012-13. However, we expect the debt to increase much higher off higher primary deficit owing to relatively lower GDP growth assumptions.

And what about Italy???

Again, we're glad you inquired. Subscribers should download our archival analysis: Italy public finances projection2010-03-22 10:47:41 588.19 Kb. We also reviewed Ireland - pdf Ireland public finances projections 040710 (568 KB) .

This is Italy's presumption of economic growth used in their fiscal projections:

italian_real_gdp_growth.pngitalian_real_gdp_growth.pn

 

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Those interested in the 2010 analysis of Spain shoud download: 

spreadsheet Spain maturity extension 010610 (The Man's conflicted copy)

pdf Spain public finances projections 033010

For those that don't subscribe, there is still a lot of nitty gritty that I made publicly available on Italy here: Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?

More on Euro stretching of the truth

If you haven't had your fill of innuendo, ambiguity, creativity and sleight of hand (my polite way of saying "lying"), you can peruse Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

For the complete Pan-European Sovereign Debt Crisis series, see:

  1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.

On a closing note....

BTC as GBP Brexit hedge

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Last modified on Monday, 20 March 2017 10:21

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