First of all, the team at Southbank Investment Research would like to express its sadness at events in London yesterday. We hope you and your loved ones are all well.

On a personal note, the countries and places I consider my homes have all been through this type of attack in the last nine months. Christmas markets I’ve been to, a shopping mall I visited often for four years, the first airport I ever used near my birthplace, the town I lived in for the seven months before joining Southbank Investment Research, and now a bridge not five minutes from where I lived and worked a year ago.

All have seen attacks of a similar nature in such a short time.

But last week I walked down the mall in Melbourne without a thought for what happened there (until my Dad made a comment about it being “the place”). Christmas wasn’t cancelled in Germany last year. My cousin will be travelling through Dusseldorf airport on her honeymoon next week. My girlfriend still lives in the town where we met eight months ago and our first day off as a couple was cancelled because of a terrorist attack.

So even though events in London are still fresh in our minds, I will write your Capital & Conflict today, just like every other Thursday.

Just like last time, London will remember and move on at the same time.

Trump update 

Yesterday’s Capital & Conflict proved prescient. It explained how Donald Trump would be vindicated when it comes to his outrageous wiretapping claims. Within hours, news hit the reels and it was so.

The House Intelligence Committee chairman confirmed Trump was monitored “incidentally”, meaning indirectly, and that the information gained was “widely disseminated” in intelligence reports.

The method actually used to monitor Trump was very similar to what I suggested it might be yesterday. I guessed that a foreign intelligence service had monitored Trump for the US intelligence service in order to get around the US privacy laws. And I pointed out that by monitoring Trump’s aides, but not him, they were still effectively monitoring Trump.

But I didn’t put two and two together. Instead of doing what I thought, the Americans just monitored foreigners they knew would be speaking to Trump and his aides. These foreigners are not protected from surveillance by US law. And the protections for Americans caught up in surveillance of foreigners are far weaker.

In other words, it’s easy for the US spies to circumvent civil protections. They just monitor any foreigners Americans talk to, who aren’t protected, and thereby indirectly monitor their own citizens. Once again the law is flouted.

It’s most likely the same practice that’s used in the UK, where foreigners aren’t protected either.

But remember, because Barack Obama didn’t tap Trump’s phones in person, it’s unfair to say he was involved. So Trump’s accusation of Obama is still false… according to The New York Times and its pundits anyway. They must be laughable to their own readers by now.

Enough of Trump. It’s been fun, but apart from the revelations about your privacy protections being worth nothing, there’s little to learn. There are more important things going on. Brexit is bearing down on us.

Barmie Barnier cracks down

The Financial Times reports on the latest threats from Europe. Michel “Barmie” Barnier, the EU’s lead negotiator and former French minister of the environment and way of life, is getting creative. He claims a “hard Brexit” would lead to all sorts of disasters:

More than 4m British citizens in the EU and European citizens in the UK faced with complete uncertainty about their rights and their future; the reintroduction of binding customs controls, which will inevitably slow down trade and lead to queues of trucks at Dover; serious disruption to air traffic; an overnight suspension in the movement of nuclear materials to the UK.”

Is it serious? Let’s break this down.

There are two types of issues to Brexit. The first is what Britain will do differently once it gains independence. The second is how the relationship with the EU will work on things like trade and migration. By combining the two, EU politicians are cleverly obfuscating what’s going on.

For example, by leaving the EU without an agreement on “rights”, Barnier is suggesting there would be a void. But Britain doesn’t need the EU to provide rights. It can provide its own rights. And do a better job. Potentially…

When it comes to British policies, Barnier wants to make Britain commit to a “level playing field” with the EU. That’s because he is worried Britain will do better than the EU on issues like tax policy, human rights, regulation, entrepreneurship and financial policy.

For Barnier it’s important that Britain remains as messed up as the EU, so that it cannot outcompete. After all, why would Britain have to stop EU migrants from coming into the country if the EU is a better place?

Then there’s the other issue – the relationship between the EU on things like trade, air traffic control and immigration.

Again, Barnier says that, without an agreement, there would be a void. But that’s simply not true. For air traffic to have problems, either the EU or UK would have to stop cooperation. For nuclear fuel to stop going to the UK, the EU would have to stop it. For trade to stop, the EU or UK would have to stop it.

Which begs the question, who will stop these things? That is the culpable person. Not the one who doesn’t want an agreement.

Barnier’s presumption is that the world stands still unless governments act and have agreements. Without a free trade agreement, there is no trade. Without a nuclear materials agreement, there is no trade in nuclear materials. Without a customs agreement, nothing flows over the border. Without open border agreements, there is no immigration.

But the natural state of things is precisely the opposite. People must be stopped by governments from trading and travelling across borders. They must be stopped from delivering nuclear materials across borders. They must be prevented from cooperating on air traffic control.

I’d love to see the EU pitching that as a reprisal for a hard Brexit! “EU air traffic controllers will henceforth stop cooperating with British air traffic controllers.” Hopefully air traffic controllers would all move to Britain in response.

If the EU wants to stop trade, migration and air traffic cooperation, it will have to do so actively. And even then, people will trade in defiance of government restrictions. They migrate in defiance of them. And so on…

If the EU or UK seriously restrict trade, I will become a full-time smuggler.

But I don’t think it is politically viable for EU politicians to be actively vindictive towards the Britain. The question is if people fall for the way the question is framed by EU politicians – an agreement or a government crackdown.

But even then, people will notice the EU has plenty of trade and migration partners outside the EU with whom things work just fine. As does Britain…

Meanwhile, there’s a world outside the EU

How many of the top ten sources of immigration into the UK are EU countries?

No, not the majority. No, not half. Two. Two out of ten. Take out Ireland and it’s one – Germany.

While EU based immigration has boomed, non-EU immigration took a hit in the last decade and a half. Last year was the first time that immigration from outside the EU was less than immigration from inside the EU. There’s a big world out there. We’re missing out on a lot of productive immigrants by being in the EU.

A slow Brexit is a good Brexit

The good news is Barnier wants the Brexit negotiations to go slowly. Everyone else seems in a rush.

Barnier is playing into our hands. A slow negotiation is one of the main themes you’ll hear about in Capital & Conflict over the next two years. The longer Brexit takes, the more negotiations stall, the more patient we are, the better. More on that tomorrow.

But first, there’s something you need to think about. If we leave the EU, are we still on the hook for a European banking system that’s heading for implosion? Do we still have to prop up the broke Greek government the next time its bonds crash?

Sure, we need to protect ourselves. But outside the EU, we aren’t tied into its mess under its terms. Doesn’t that sound nice?

Until next time,

Nick Hubble