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Crashed

Page 67

by Adam Tooze


  It is hard to think of any moment in Britain’s recent history in which the locus of power was less obvious than in the aftermath of Brexit. The Remain coalition had included the leadership of both main political parties and what most people think of as the establishment. They lost a crucial referendum by a slender margin and surrendered authority to their opponents, who revealed themselves to be utterly unprepared for their own victory. How often had the Left fantasized about such a moment of disempowerment? But this was no new dawn. After a few weeks of chaos in the conservative camp, Theresa May emerged as the new prime minister. It was a logical fit. May had made her reputation as a stern Home secretary pushing a protective agenda of immigration restriction.64 Though she had cautiously campaigned for Remain, she was well suited to represent the insular majority. And she put a brave face on things. The population had voted for Brexit and that is what she would deliver.

  For the City of London and British big business, the vote was a breathtaking shock. And for some commentators it was precisely this body blow that offered the prospect of a grand rebalancing. Was this a moment at which the structures of power and money that had consolidated around the City of London since the 1970s might be cracked open? Mody hailed the result because it shattered the “nexus between an ever larger financial sector and a strong pound. . . . The only people who truly lose from the pound’s depreciation are those who borrowed short-term dollars to invest in long-term property assets. This ‘elite’ group continues to hold the microphones of policymaking and its words reverberate through the financial press.”65 London’s wealth had long crowded out the rest of the British economy; perhaps now, with a devalued pound, UK manufacturing might recover its competitiveness.66 In fact, of course, Britain’s largest manufacturing exporters had thrown their weight solidly behind the Remain campaign and with good reason. Given the ferocity of global competition, the last thing they needed was years of uncertainty about market access. Industries like the large motor vehicle industry were foreign owned—mainly German and Japanese. Those investors might well see Brexit as a signal to withdraw. The devaluation benefited them only marginally because most exports from the UK have low price elasticity and the gains in competitiveness were substantially offset by the increase in the cost of imported materials.67

  That the status quo had suffered a blow was undeniable. Whether it would give way to something better balanced and more prosperous in the foreseeable future was a different question. The groundswell of anti-EU sentiment had been building for decades. But it was a politics of resentment and protest. It had not formulated a positive alternative vision. Now May and her personal advisers had to come up with an agenda. To the astonishment of many, it seemed that they were determined to carry out a radical pivot. Overnight they would replace David Cameron’s agenda of upper-class modernization with national welfarism with an admixture of soft authoritarianism.68 As May put it in a defining speech to the Tory party conference in October 2016: “Today, too many people in positions of power behave as though they have more in common with international elites than with the people down the road. . . . But if you believe you are a citizen of the world, you are a citizen of nowhere. You don’t understand what citizenship means.”69 Skipping over the Tory party’s own policies since 2010, May returned to the crisis of 2008. “It wasn’t the wealthy who made the biggest sacrifices after the financial crash, but ordinary, working-class families. And if you’re one of those people who lost their job, who stayed in work but on reduced hours, took a pay cut as household bills rocketed, or someone who finds themselves out of work or on lower wages because of low-skilled immigration, life simply doesn’t seem fair.” Though May spoke about the victims of 2008 and Tory austerity in the third person, the Lehman moment served as retrospective justification for a fundamental reorientation. Henceforth she would put “the power of government squarely at the service of ordinary working-class people.” She pilloried uncaring bosses, tax-avoiding international companies, Internet companies that refused to cooperate in the fight against terrorism and corporate directors who took out “massive dividends while knowing the company pension is about to go bust.” Using language more to be expected from Putin or a Latin American demagogue, she warned: “I’m putting you on warning: this can’t go on any more.”70

  Control, restricting immigration and equity would have priority over absolute growth. It was not a liberal vision. It implied an entirely new apparatus of regulation and control. As one critic noted, May’s effort to exclude foreigners from the workforce would require putting “in place a degree of government interference in the labour market that would make even the most die-hard socialist blush. Margaret Thatcher must be turning in her grave.”71 It was a small price to pay for someone with May’s background in the Home Office—what might politely be described as the “protective branch” of government. But it begged the following question: How far was May really willing to go in curbing the excesses of big business? It was one thing to erect barriers against foreign workers and unwanted refugees, quite another to deal with a major foreign investor. When Nissan threatened to rethink its investment in Sunderland, the “muscular state” was quick to invite the car company to Downing Street for talks.72 The government would later deny that it had promised to indemnify Nissan for the costs of a bad Brexit deal. But Nissan was an early sign that “taking back control” might not turn out to be the bold act of autonomy that some imagined. It might very well turn out to be a rather expensive and humiliating process of negotiation.

  And what about the City of London? After Brexit, could it continue to function as the hub between global finance and the eurozone? Could it continue as the main center for euro clearing and euro derivatives? The bankers were not about to give up without a fight. The City lobbied hard for the government to prioritize the existing passporting agreements, under which banks operating in London were de facto recognized as operating inside the eurozone.73 If no such deal was forthcoming, research commissioned by the City threatened that the collapse in business with the euro area might result in losses as large as £32 billion to £38 billion in revenues, 65,000 to 75,000 jobs and perhaps as much as £10 billion in tax receipts per annum.74 These, of course, were precisely the kinds of estimates mobilized by the Remain campaign, to little effect. What influence would they have now?

  In the immediate aftermath of the referendum it seemed that Downing Street might be amenable to a compromise deal. But by January 2017 the mood had hardened. The UK would insist on the right to restrict the freedom of movement and judicial sovereignty, and this meant that London could expect no concessions from Brussels. Not only did Brexit mean Brexit, but Brexit meant “hard Brexit.” This was the message that May delivered in speech after speech and also in direct talks with leading finance bosses. When asked by Lloyd Blankfein of Goldman Sachs, one of the largest corporate donors to the Remain campaign, to rank the City of London in her list of priorities, May dodged the question.75 The bankers realized with incredulity that they were no longer top of the list. The City’s passporting arrangements were less important than regaining “control” over Polish plumbers.76

  But who, in fact, would determine the outcome of Brexit? Over the winter of 2016–2017 the realization began to dawn that the freedom and control one claimed for oneself also applied to those one detached oneself from. What freedom the UK gained at what price would depend on the kind of bargain that the EU was willing to offer now that it was free of the troublesome British. The advocates of Brexit insisted that Germany and others would be forced to offer Britain a good deal on account of their export interests. Britain’s gaping trade deficit would be its chief bargaining card. But this simplistic logic was a poor guide to the functioning of a complex organization like the EU, in which an entire mesh of interests and concerns would be brought to bear on the Brexit question.77

  With remarkable speed and with clear leadership from Berlin, the other states of the EU agreed on a tough bargaining position, which
insisted that there would be no trade talks before the terms of the divorce were settled. Britain would have to agree to meet its financial obligations to the EU, running into the tens of billions of euros. There could be no access to the common market without freedom of movement. The writ of the European Court of Justice would continue to run as far as citizens of the EU were concerned. Once Britain triggered Article 50, setting Brexit in motion, there would be a two-year clock. No deal would mean that Britain would crash out of the EU into limbo. It would even have to renegotiate its position in the World Trade Organization. As Juncker explained to May over dinner in London in May 2017, the British were kidding themselves if they imagined there was a “good outcome” to Brexit.78

  Characteristically, as the true complexity and difficulty of the situation began to dawn on London, May’s government reacted with drastic, crude and contradictory threats. In her October 2016 speech to the Tory party conference, May had linked the demand for sovereignty to a vision of national solidarity. But as the negotiating positions hardened, it became clear that there was also another option. As May put it to the EU’s ambassadors in mid-January at a set-piece meeting in Lancaster House: If Britain could not get an acceptable trade deal from the EU, it would walk away without agreement. If the EU took a “punitive” stance, Britain would respond by abandoning the “European model” and setting “the competitive tax rates and the policies that would attract the world’s best companies and biggest investors.” Britain would reconfigure itself, journalists reported, as a “low-tax Singapore of the west.”79 Days later Chancellor Philip Hammond repeated the threat. He personally hoped that the UK would be “able to remain in the mainstream of European economic and social thinking. But if we are forced to be something different, then we will have to become something different.” To regain competitiveness Britain might be forced to reconsider its “economic model. . . . And you can be sure we will do whatever we have to do.”80 The Remain campaign had always insisted that the Brexit decision put the entire economy in play. With the threats they made as they approached negotiations with the EU in January 2017, Hammond and May effectively acknowledged the force of the Remain position. Far from taming British capitalism, the muscular state would turn the City of London and Britain’s offshore position into a battering ram.

  This kind of bravado might help to warm the hearts of Brexiteers. But it left serious players in global business nonplussed. The City of London had not asked for Britain to abandon the “mainstream of European economic and social thinking.” The European mainstream suited the bankers just fine. They had had a large hand in defining it. The proposals that had worried the Tories in 2011, notably the financial transactions tax, had evaporated. There might well be challenges from the ECB or the French over euro-denominated business. But that was not a reason for leaving. It was a reason to fight one’s corner. The transnational business community in London was networked in the EU at the highest level. The president of the ECB was one of their own.81 In the summer of 2016, when former commission president Barroso looked around for a new job, it turned out that his idea of the “European model” was to join Goldman Sachs’s London operation.82 The idea that Europe was in some way inimical to the operation of British-based global business belonged to the realm of late-Thatcherite fantasy. On the other hand, the “freedom” of Brexit meant radical uncertainty. None of the leading American banks wanted to be preparing contingency plans to move their euro business out of London, but what was the alternative? Though London had huge attractions, its national politics had become unresponsive. The subordinate nodes in the transatlantic financial network—Paris, Dublin, Frankfurt—beckoned. And if not, perhaps the days of the transatlantic, offshore dollar were numbered. The City had sensed the way the wind was blowing. Asia was the new frontier.

  V

  Faced with the Brexit vote, the EU concerted its position with daunting speed. Negotiating complex treaties was what Brussels was good at. But there was no denying the shock. The EU had suffered many crises in its history. “Europe advances in disguise,” Jacques Delors, the legendary father of the single market and the euro, was fond of saying. But Brexit capped a prolonged succession of setbacks that challenged this optimistic teleology. Was this, Alex Stubb, finance minister of Finland, wondered, Europe’s “Lehman Brothers moment”?83 In containing Syriza, the chief worry of the conservatives in the Eurogroup had been political contagion. Brexit revived that fear. As a spokeswoman for Moody’s commented: “The downside risks to global growth stem not from the possibility of a recession in the UK, but from the possibility that developments in the UK may give rise to increased political risk elsewhere in the EU.”84 Marine Le Pen hailed the Brexit referendum as a “dazzling lesson in democracy.”85 The right-wing nationalist Geert Wilders in the Netherlands called for a “Nexit” vote. Would a nationalist, Europhobic wave spread from Britain, Poland and Hungary to the rest of Europe? For almost a year after Brexit, that risk seemed all too real. And the stakes were high. Europe’s economic stabilization depended on calm in the bond markets. As one analyst commented: “There is no guarantee that investors’ emotions will not turn wild again if signs of political contagion from the UK into mainland Europe become more visible.”86

  The elections came thick and fast. In December 2016 a constitutional amendment in Italy was voted down, leading to the resignation of left-of-center prime minister Renzi. In Austria the presidential election was bitterly contested by the Far Right. In the Netherlands Geert Wilders and his right-wing party were on the march. Theresa May announced an election in Britain with a view to securing a large Brexit majority. But the real question surrounded France. Given the electoral base she had accumulated and the Front’s performance in the May 2014 European elections, there was little doubt that in the upcoming presidential election in May 2017 Marine Le Pen would make it into the final runoff. The question was who would run against her: a traditional conservative, a centrist modernizer in the form of Emmanuel Macron or the real terror of the establishment, the left-wing Mélenchon? A Le Pen versus Mélenchon runoff was the nightmare of the markets.87 Whatever else divided these two, they had in common their antipathy toward Germany.

  In the spring of 2017 the world held its breath. The euro gyrated. European political uncertainty was the key “tail risk” for fund managers. The ECB’s bond buying was the one major source of stability. However unlikely the scenario, if Le Pen were to break through in France, it was hard to see how even the ECB’s largest program could have avoided another sovereign debt crisis. As it turned out, the center held. In every case the electorate opted against the populist right wing. In France, the charismatic former minister in Hollande’s government Emmanuel Macron, taking votes from both the center-right and the center-left, won first the presidency and then the National Assembly elections. This put a cap on the populist spook.88 To their council meeting in June 2017, Europe’s leaders showed up in a bullish mood. The EU had survived. It had tamed the Left in Greece and Portugal. It had seen off the right-wing surge. The negotiations with Britain would be painful but one-sided. Europe was back. But by the summer of 2017 it faced a new challenge to its identity and to its role in world affairs, a challenge that came not from inside but from without. The challenge had announced itself a year earlier, from a golf course in Scotland on the day after the Brexit referendum.

  That sunny Friday morning outside the clubhouse in Turnberry Ayrshire, the cameras were trained on an American businessman holding forth enthusiastically about the referendum result89: “Basically they took back their country,” he declared to the skeptical Scottish audience. Obama should never have meddled. “It’s not his country, it’s not his part of the world, he shouldn’t have done it, and I actually think that his recommendation perhaps caused it to fail.” The speaker identified unreservedly with Brexit. “People want to take their country back, they want to have independence in a sense, and you see it with Europe, all over Europe. . . . You’re going to have many other cas
es where people want to take their borders back, they want to take their monetary [sic] back, they want to take a lot of things back, they want to be able to have a country again. . . . People are angry, all over the world people, they’re angry. . . . They’re angry over borders, they’re angry over people coming into the country and taking over, nobody even knows who they are. They’re angry about many, many things.”

  The speaker was inarticulate. He was not well informed. He did not seem to appreciate that his Scottish audience had voted overwhelmingly to remain. The day after the shock result, the EU certainly had other things to worry about. But what demanded attention, what made the sound bites newsworthy, was the fact that the man in question was the presumptive nominee of the Republican Party to replace Barack Obama as president of the United States.

  Chapter 24

  TRUMP

  On July 21, 2016, a burly figure strode across a podium dressed seemingly to inspire memories of Captain America, Citizen Kane or a 1930s fascist rally. The man in the spotlight was there to deliver a speech with which he meant to change American history.1 It was a flaming denunciation of the Obama administration. He evoked an alarming image of America harried by terrorism, violence and chaos. He told his audience 180,000 illegal immigrants with criminal records were that very night “roaming free,” terrorizing and murdering innocent Americans. Meanwhile, lives were getting tougher. “Household incomes are down more than $4,000 since the year 2000. Our manufacturing trade deficit has reached an all-time high—nearly $800 billion in a single year. The budget is no better. President Obama has doubled our national debt. . . . Yet, what do we have to show for it? Our roads and bridges are falling apart, our airports are in Third World condition, and forty-three million Americans are on food stamps.” Why were things this bad? Because “big business, elite media and major donors” had all conspired for decades to rig the system. Now those same forces were lined up behind his opponent. “She is their puppet, and they pull the strings.” At this point the crowd reacted with chants for her to be thrown in jail. Against this elite conspiracy the man in the spotlight promised to fight for the “neglected, ignored, and abandoned . . . the laid-off factory workers, and the communities crushed by our horrible and unfair trade deals . . . the forgotten men and women of our country. People who work hard but no longer have a voice. . . . History is watching us,” he declared, “waiting to see if we will rise to the occasion, and if we will show the whole world that America is still free and independent and strong.” His answer boomed around the hall. He promised one thing: “to put America First. Americanism, not globalism, will be our credo.”

 

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