Cameron’s EU Gamble

The big news over the weekend in the United Kingdom (UK) is that, after having secured some kind of deal from his European Union (EU) partners, Prime Minister David Cameron has called for an “in-out” referendum on EU membership to be held on June 23.  The betting has to be on the UK staying in, but shit happens.


shit sandwich… and sometimes, it not only happens, but comes in a sandwich.


First, a little bit of history.  The referendum fulfills a campaign promise that Cameron made in the 2015 general election.  Although he may come to regret it, the purpose was to put an end to Conservative Party squabbling over the EU, at least until after the vote.  It was also a response to the slow advance of the United Kingdom Independence Party, which was polling stronger and had actually succeeded in poaching two Conservative Members of Parliament (MP).

The pledge had two parts.  The first was for Cameron to trek to Brussels to try to change the EU rules or at least to negotiate more “outs” (exemptions) for the UK.  The second was to submit the revised terms to the UK public.  In a tangentially related matter, Cameron also announced that this would be his last parliament as the leader of the Conservative Party, firing a starting gun in the race for his succession.  He may also regret this announcement for reasons that I will explain below.

The renegotiation with the EU can only be described as a damp squib.  After rounds of meetings with other EU members to test their appetite for reform[1], Cameron announced a disappointingly modest group of four goals.

The first was a commitment that the 19 members of the EU that use the euro would not use their majority to the detriment of the nine members of the EU, including the UK, that remain outside of the currency union.  This included an explicit recognition that the EU has multiple currencies and a commitment that the non-euro zone members would not have to contribute to any euro zone bailouts.  Cameron was also looking for assurances that the City of London would not be automatically subject to EU rules designed to promote further financial union within the euro zone.

The second was an exemption for the UK from the commitment, contained in the first treaty establishing the EU, to move towards an “ever closer union.”  Cameron also wanted enhanced powers of national parliaments to block EU legislation.

The third was a nebulous commitment to competitiveness and a reduction of regulations.  This was a response to the notorious EU rules such as e.g. those on the curve of cucumbers and the bends of bananas, which the English view as emblematic of a pernicious Eurocratic mission creep.


NegotiationsDavid Cameron presents himself for tough negotiations in Brussels.


Finally, and most controversially, Cameron wanted the ability to deny social and housing benefits for any EU citizens migrating to the UK for the first four years of residency; he also wanted to avoid paying child benefits for any children not residing in the UK.  As I have pointed out before, this is an attempt to fight a perhaps fictional “welfare tourism,” the movement of citizens from some of the poorer EU countries to the UK just to enjoy the higher benefits available in this country.[2]

Perhaps more importantly, from the standpoint of Cameron’s political calculus, it was an attempt to show that he is doing something to meet his 2010 pledge to reduce net migration to the UK to less than 100,000 per year, a goal that he is far from meeting: a record 336,000 net arrivals came in the twelve months to mid-2015.


Modest Beginnings, Modest Ends

From modest beginnings came even more modest ends.  Cameron got his commitment on competitiveness, but these have been made before with little effect.  He also got a largely symbolic pledge to exempt the UK from the “ever closer union” language when the treaty is next revised.  Along with this, he was granted a “red card” – the EU politicians love to use football metaphors  – system whereby 55% of the national parliaments could band together and block EU directives.  But the already existing “yellow card” (warning) system has rarely been used.

On the relationship with the euro zone, Cameron got his request that EU members outside the currency union would not be asked to pay for its myriad shortcomings.  This includes a commitment to reimburse non-euro zone states for any central EU money used to bail out the euro zone.  But he encountered firm French résistance on the applicability of new financial rules.

Cameron got the strongest pushback on the benefits changes.  Within the EU, the UK normally allies with the recent entrants from central Europe, such as Poland, to fight the ossifying tendencies of the older members of the union.  But this was a case of national pride and the leaders of central Europe could not stomach a rule that so clearly identifies their countrymen as second-class Europeans.

So Cameron got the right to apply a “emergency break” and limit benefits over the first four years of residency, but only on a sliding scale “to take account of the growing connection of the worker with the labor market of the host Member State.”  Cameron also got the right to index child benefit to the levels available in the country of residence of the child, but the UK is still required to pay it.  These rules will stay in place for 7 years, far short of the 13 years the English requested.


SpectreWell, perhaps not quite.


Premature Declarations of Victory

Predictably, Cameron has declared victory and he, and his government, will now fight for an “in” vote.  In his announcement of the referendum, he pointedly referred to a “reformed Europe” and the UK’s “special status” at every opportunity.  It will be interesting to see if the UK public agrees with him when new polls are published.  Prior to the weekend, the latest polls show a majority for the “in” vote of 54% to 46%.  But these numbers are volatile.  As recently as a week ago, the results were a dead heat.

Whenever polls are this close, the status quo has the upper hand.  It is easy to opt for change when answering a pollster’s question but a lot harder to actually pull the voting handle.  The devil that you know will almost always beat the unknown one.  This is particularly true since the UK’s business leaders and media will line up squarely on the side of the “in” vote, warning of economic and national security risks if the UK leaves the union, in return for few benefits.

They will have strong arguments since the “association agreement” that the UK will need to maintain free access to the Common Market, similar to the agreements applicable to Norway and Switzerland, will subject the UK to many of the rules that it is currently trying to avoid.  With the important difference that the English would lose their vote in determining these rules.

So, the coldly reasoned choice will be for the UK to stay in.  But there is a saying attributed to Charles de Gaulle that politicians can control the question asked in a referendum, but they can’t control the question the voters will answer.  And therein lies the risk of a British exit (Brexit).


what was the questionThe answer is yes! What was the question?


Nasty News Flow

There is a good chance that the referendum will become a general vote on whether the EU is the kind of club to which the English would like to belong.  Therefore, much of the vote will depend on the type of headlines the EU is getting at the time of the referendum.  In addition to the unknown unknowns, there are at least three areas that could generate some very nasty news flow in the summertime.

The first is the ongoing refugee problem.  Although the EU is trying to address this issue, including through greater cooperation with/bribery of Turkey and strengthening procedures in the arrival states of southern Europe, so far only winter weather has proven to be an effective deterrent.  If, come summer, the pace has returned to the roughly one million per annum arrivals experienced in 2015, and if this is combined with more news like the Parisian terrorists who snuck in as refugees or the immigrants who ran wild in Cologne or the immigrants camping out in Calais and trying to sneak into the UK, then EU membership will not look very appealing.

The Greek crisis is also on a slow boil.  Things had been quiet but some of the most controversial reforms still need to be implemented.  The changes to pensions, the most sensitive of all, have recently caused protests.  The Greek preference to plug the pension gap with additional taxes, as opposed to the creditor demand to cut benefits, is also looking more problematic: The Economist has just run an article pointing out the Greek businesses are already upping stakes in response to heavier tax burdens.  And the vexed issue of further debt relief, potentially including loan write-offs, has to be tackled at some point.

Finally, there are the problems on the Iberian Peninsula.  Although the Spanish economy is ticking along nicely, it is without a government two months after the last election and there is no clear path to getting one; the related issue of Catalan independencealso lurks.  In Portugal, a left-wing, anti-austerity party is on a collision course with the EU, exposing the union to the type of political and economic convulsions that Greece’s similar Syriza party has already produced.


Et tu, Boris?

Before, a generalized anti-EU sentiment would have struggled to find a leader.  But Boris Johnson, the former Mayor of London and current MP, has just changed this by joining the “out” campaign.  Cameron had previously agreed to allow Conservative politicians to follow their conscience – or their political expediency – in the EU vote.  Over the weekend, six cabinet ministers came out against staying in the EU, but these were relative light weights.  Boris Johnson boxes in a different class.  He is one of the most popular politicians in the UK and he is a fearsome debater and polemicist.


BorisEt tu, Boris?


Although Johnson has characterized his decision as one of principle, it is hard not to see the political calculation behind it.  As mentioned, Cameron is stepping down after this Parliament, which ends no later than 2020 and much sooner if he loses the EU vote.  With the opposition divided between the secessionist Scottish National Party (SNP) and a leftward-lurching Labor Party, the next Prime Minister will almost certainly be a Conservative.

This is the role that Johnson has always coveted and until recently he was the heir apparent.  However, the rising star of the Chancellor of the Exchequer[3]  George Osborne means that the conventional path to leadership may now be blocked.  There is a very good chance that Johnson decided to risk an unconventional one.  Had Cameron not announced his retirement, Johnson may have seen less of an opportunity in the referendum.
The British pound vs. the USD (a.k.a. “cable”), 10 minute candles over the past week. Traders got whipsawed, at first buying “hope” and then getting surprised by Boris Johnson joining the “out” campaign.


Potential Consequences of a BREXIT

What are some of the consequences if the UK leaves the EU?  Most are evident, but here are some of the less obvious ones:


  • If the UK votes to leave the EU, then the SNP will certainly ask for another referendum on Scottish independence.  There is a good chance that the independence movement would win this time.  Scotland is much more pro-EU than the rest of the UK.  An “out” vote would be taken as yet another sign that the rest of the country does not care about the Scots.  This could be sufficient to tip the 55%/45% “no” vote from 2014 in the opposite direction.
  • The UK vote, and certainly any Scottish follow through, would embolden other regional movements, notably the Catalans.  An anti-EU vote in the UK could threaten the territorial integrity of more than one European nation.
  • A successful UK referendum would strengthen the hand of anti-EU parties on the continent, such as the Front Nationalin France, which would argue for the same democratic rights as the English.  This argument would be doubly powerful since it is now evident that the UK has made much better choices about the EU than, say, the French or the Germans.  The UK has stayed out of the passport-free Schengen zone, sparing themselves an influx of refugees.  The UK has also stayed outside of the euro zone, avoiding the costs and volatility of the euro zone crisis.   If the relatively protected English still find the EU intolerable, then the message to the remainder of the countries is clear.
  • Finally, without the UK, the EU is likely to follow its worst instincts in matters of economics and politics.  This is the big fear of the United States and why Secretary of State John Kerry has again come out in favor of unity.  But it is not just the US that fears an EU without its UK ballast.  The CEO of Lufthansa certainly expressed the sentiments of many continental business leaders when he recently told a UK audience that German businesses would “feel alone without you guys” and “we will only have the socialist people around us like the French.”  This is not only a German sentiment.  A Brexit would further the “north-south” divide that the euro zone and migrant crises have already opened wide enough.


Put all of this together and the hopes for a year with no risk of European black swans is now thoroughly dashed.  In fact, it is not unimaginable that 2016 could be as consequential for Europe as 1989.  1989 saw the beginning of the end of the Soviet empire in the east and the fragmentation of Yugoslavia.  2016 could be the beginning of the end of the EU and the fragmentation of several states.  All of this seems unlikely, but we live in a world where voters are increasingly inclined to follow the punchline from the movie The Commitments:  “They had absolutely nothing.  But they were willing to risk it all.”


BlackSwanFlockOops! There are more of those than we thought!

Photo via




[1] A major restriction on reform was that no leader wanted to modify the EU treaties, which would have required approvals from national parliaments or, in some cases, national referenda.  These are always bruising battles that not even EU leaders who are sympathetic to the UK’s demands wanted to see.

[2] So far, the evidence for widespread welfare tourism is scant, with studies showing that immigration by EU citizens has actually improved the fiscal position of the UK since at least the first wave of EU immigrants pay more in taxes than they consume in government services.  In a way that would warm the heart of Donald Trump, this has nevertheless become a political issue.

[3] Finance minister by any other name.


Chart by:


Chart and image captions by PT


All Cartoons by Steve Bell


This article was originally posted at Economic Man.


Roger Barris is an American who has lived in Europe for over 20 years, now based in the UK. Although basically retired now, he previously had senior positions at Goldman Sachs, Deutsche Bank, Merrill Lynch and his own firm, initially in structured finance and latterly in principal and fiduciary investing, focussing on real estate. He has a BA in Economics from Bowdoin College (summa cum laude) and an MBA in Finance from the University of Michigan (highest honors).



Emigrate While You Can... Learn More



Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!


Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke


One Response to “To Be or Not to Be: The UK Referendum”

  • FreemonSandlewould:

    So the end of all this is that Germany did not have to fight WWIII to gain control of Europe. If only Hitler had been so smart there would be many more Europeans alive today to take up space and prevent the rapefugees invading.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 5-cotmmrangegc03Ganging Up on Gold
      So Far a Normal Correction In last week's update on the gold sector, we mentioned that there was a lot of negative sentiment detectable on an anecdotal basis. From a positioning perspective only the commitments of traders still appeared a bit stretched though, while from a technical perspective we felt that a pullback to the 200-day moving average in both gold and gold stocks shouldn't be regarded as anything but a normal - and in this case actually long overdue -...
  • gold_bullionGold Sector Correction – Where Do Things Stand?
      Sentiment and Positioning When we last discussed the gold sector correction (which had only just begun at the time), we mentioned we would update sentiment and positioning data on occasion. For a while, not much changed in these indicators, but as one would expect, last week's sharp sell-off did in fact move the needle a bit.   Gold - just as nice to look at as it always is, but slightly cheaper since last week. Photo via The Times Of India   The commitments of...
  • wryAustralian property bubble on a scale like no other
      Australian property bubble on a scale like no other Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs:   Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included:    the record run up in commodity prices and subsequent correction;  the associated...
  • "What if we don't change at all ... and something magical just happens?"Prepare for the Unthinkable
      Red Ink Growth and profits mask a variety of problems.  They hide business inefficiencies and the money suck of corporate adminis-trivia.  They also conceal unproductive staff.   The final career leap   But most of all growth and profits obscure the extreme value subtracting forces of bloated management teams.  During good times it is unclear what these smug fellows do.  During bad times it is lucidly clear that most of them ain’t worth a darn. When the...
  • andy-duncan-and-claudio-grassA Looming Banking Crisis – Is a Perfect Storm About to Hit?
      Andy Duncan Interviews Claudio Grass Andy Duncan of has interviewed our friend Claudio Grass, managing director of Global Gold in Switzerland. Below is a transcript excerpting the main parts of the first section of the interview on the problems in the European banking system and what measures might be taken if push were to come to shove.   Andy Duncan of (left) and Claudio Grass of Global Gold (right)   Andy Duncan: How do you see the...
  • urban_ii_croppedPope Francis: Traitor to Western Civilization
      Disqualified There has been no greater advocate of mass Muslim migration into Europe than the purported head of the Catholic Church, Pope Francis.  At a recent conference, he urged that “asylum seekers” be accepted, “through the acts of mercy that promote their integration into the European context and beyond.”*   Before we let Antonius continue with his refreshingly politically incorrect disquisition, we want to remind readers of two previous articles that have...
  • spankinggoodtimeUS Stock Market - a Spanking May be on its Way
      Iffy Looking Charts The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though.   Time for some old-fashioned...
  • fischersDoomed to Failure
      Larded Up and Larded Over We’ve been waiting for the U.S. economy to reach escape velocity for the last six years.  What we mean is we’ve been waiting for the economy to finally become self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out.  Unfortunately, this may not be possible the way things are going.   As Milton Jones once revealed: “A month before he died, my grandfather covered his back in lard. After that, he went...
  • larry-1Meet Your New Stimulus Allocation Czar
      March Towards Midnight The march towards midnight is both stirring and foreboding.  Like a death row inmate sitting down to savor his last meal, a grim excitement greets the reality of impending doom.  Thoughts of imminent mortality haunt each bite.   Tic-toc, tic-toc...   As far as the economy’s concerned, there’s no stopping its march towards midnight.  The witching hour’s rapidly approaching.  We intend to savor each moment and make the best of...
  • state_police_980_600_s_c1_t_c_0_0_1Are the Deep State’s Drones Coming for You?
      What’s Aleppo?   Look out kid Don’t matter what you did Walk on your tip toes Don’t try "No Doz" Better stay away from those That carry around a fire hose Keep a clean nose Watch the plain clothes You don’t need a weather man To know which way the wind blows – “Subterranean Homesick Blues,” Bob Dylan   The entrance to Baghdad's “Green Zone”. Photo credit: Karim Kadim / AP   DELRAY BEACH, Florida – Biggest foreign policy blunder...
  • speculatorInterview with Doug Casey
      Natalie Vein of BFI speaks with Doug Casey   Our friend Natalie Vein recently had the opportunity to conduct an extensive interview with Doug Casey for BFI, the  parent company of Global Gold. Based on his decades-long experience in investing and his many travels, he shares his views on the state of the world economy, his outlook on critical political developments in the US and in Europe, as well as his investment insights and his approach to gold, as part of a viable strategy for...
  • chairman-tienanmen-square-beijingDonald is Right – The System is Rigged
      Scams and Flimflams BALTIMORE – For weeks, the top news headlines have been about politics. And politics has been all about the Republican Party candidate for president of the United States, Donald Trump.   Two very different elections...   The Establishment, the media, and most right-thinking people look around and sniff the air. Something stinks. And the smell, they say, is coming from that skunk, Trump. Meanwhile, Hillary, all greased up with expensive...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank




Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Buy Silver Now!
Buy Gold Now!