England Decides Not to Pay Europe’s Bills Any Longer

Screen Shot 2016-06-24 at 7.35.20 AMIn the immortal words of British Politician and former commodities broker Nigle Farage, “Who the hell do you people think you are?”. These words were delivered by Mr. Farage several years ago to the European Union general assembly in disgust when the EU decided they would not allow Ireland to hold a political vote until they presented a budget that was acceptable to the EU. Mr. Farage was scolding the EU members for thinking they were superior to the rights of the people of Ireland. It also reflected the general unspoken attitude of England toward Brussels meddling in their affairs. I guess the British were tired of paying someone else’s bills and getting little consideration in return.

The European Union goes back to post World War II with the creation of the European Economic Community (EEC). It was a good idea to create joint economic strength through cooperation. Unfortunately, it grew and expanded as many politically entities do and turned into a self-absorbed gathering of meaningless discussion and inefficient programs.

AS a result of the vote, the pound Sterling (UK) dropped immediately, it should, it is now not associated or “tied” to a larger economic block. Notice how the immediate reaction was to fall 11% as surprise and panic swept across the masses, only to see a pickup in value so that the current drop is only 7%. The same is true with the markets. The FT100 index dropped 8% initially and recovered to a loss of 5%. Many people bet on a “remain” vote and moved into the market in the past several days, this was followed by a surprise and some fear of now what? It will most likely take a few days to sort this out in the markets while London now has 2 years to negotiate the divorce. In a few days, after Brussels recovers from being rejected, the reality of the loss of the U.K.’s positive and supportive economic value will come forward and common sense, or forced economic reality will prevail.

What will happen in the rest of Europe? Will we be reading about FrExit as France decides that maybe they do not want to increase their portion of the support and expense of Brussels? All of the old expenses remain without London to pay the bill. Will Germany bid Brussels auf Wiedersehen as they reconsider paying for permanent bailouts? While the short term prospects are all disruptive, the medium and long term prospects might be well received. The European Central Bank (ECB) may need to face reality that negative interest rates don’t work if your method of boosting economic growth is to punish the saver. Maybe they will need to convert to a rewards program?

For now, I am letting the dust settle and now adding dividend undervalued investments as they present themselves. You can see how those who rushed to a conclusion on a “remain” vote did not exactly get the result they were counting on.

By | 2016-06-24T07:37:00+00:00 June 24th, 2016|Categories: Money Basics|0 Comments

About the Author:

Steven Albrecht was the President and CEO of Charter Trust Company from 2001-2016

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