Saturday, June 25, 2016
Post-Brexit financial world remains uncertain; Soros warns of EU disintegration; Democracy's woes
1 Post-Brexit financial world remains uncertain (Nils Pratley in The Guardian) This post-Brexit financial world will require a lot of untangling. If a UK recession, however mild or brief, lies ahead, banks will see more loans turn sour while consumers’ appetite for fresh debt will shrink. Worse for the banks, the whiff of any medium-term rise in interest rates in the UK has disappeared.
The fear of recession also undermined the housebuilding sector, where most stocks fell by a quarter. Mortgages may remain extraordinarily cheap in the new world, but confidence in house prices is suddenly anybody’s guess.
What happens next? It’s easy to imagine how financial waves from the upheaval in currency markets could spread around the world. Even as things stand, the strong US dollar is creating severe pressures in China, where Beijing’s softly-softly attempt to loosen the renminbi’s peg with the US currency upset markets at the start of this year.
Dominic Rossi of fund manager Fidelity International expects lower growth across the UK and the rest of Europe, but thinks the political shock from the UK referendum will be greater than the economic one.
The good(ish) news was delivered by Mark Carney, governor of the Bank of England: the financial system is far stronger than it was in 2008 and banks’ capital requirements have been stressed against “scenarios more severe than the country currently faces”. There is no reason to doubt that statement. But financial markets’ medium-term adjustment to the post-Brexit world remains deeply uncertain.
2 Soros warns of EU disintegration (BBC) Billionaire investor George Soros has warned that Britain's vote to leave the European Union makes the disintegration of the bloc "practically irreversible". However, he called for thorough reconstruction of the EU in an attempt to save it.
Before Thursday's UK referendum, Mr Soros had warned of financial meltdown if Britain voted to leave. "Britain eventually may or may not be relatively better off than other countries by leaving the EU, but its economy and people stand to suffer significantly in the short- to medium term," he wrote after the referendum.
He said the consequences for the economy would be comparable to the financial crisis of 2007-2008. "After Brexit, all of us who believe in the values and principles that the EU was designed to uphold must band together to save it by thoroughly reconstructing it," he wrote.
3 Democracy’s woes (Anjum Altaf in Dawn) Over 2,000 years ago, Plato was sceptical of democracy because he felt that voters, even though restricted to property-owning male citizens, were swayed easily by the rhetoric of politicians.
Democracy disappeared for over 1,500 years following its demise in Athens and it was only then that its slow evolution began in England and spread to other parts of the world. During colonialism it was asserted that natives were not ready for democracy. Similar reservations regarding the developing world persisted beyond the end of colonialism.
The intellectual challenge to democracy was unaddressed — after all Hitler was popularly elected and voters have often elected leaders who they themselves condemn as thieves and rascals. The revival of this debate is due to the turmoil in the democratic homeland — governmental gridlock, the surge in extremist sentiment in Europe, and the emergence of Trump as a presidential candidate in the US.
Reservations about democratic decision-making have been expressed more recently by Richard Dawkins with reference to the UK referendum on EU membership. Dawkins asks: “You want your surgeon to know anatomy… Why would you entrust your country’s economic and political future to know-nothing voters like me?”