Britain has agreed on a transition deal with the EU. But the EU’s negotiator reminded us that “nothing is agreed until everything is agreed”.

So have we agreed on a transition deal or not?

The agreement on the transition deal is to give us all more time to agree. But if nothing is agreed, then the transition deal is not agreed to either. And neither is anything else they’ve agreed on. So they haven’t actually agreed on anything.

Never has the mantra “agree to disagree” been more apt.

It looks like the whole drama is really just an extension of the negotiating period. Since the referendum I’ve been pointing out that under the EU rules governing a departure from the EU, you can extend the negotiation period by unanimous agreement. The two-year deadline is false. And Britain would’ve been much better off seeking an extension while threatening a hard Brexit if it didn’t get one.

In the end, all the EU and UK agreed to is that the UK can now negotiate its own trade deals. That’s an enormous concession from the EU.

And yet the new deal is being painted as the opposite by the media. Britain supposedly made concessions. But none of those are agreed to until everything is agreed, so they’re not actually concessions.

The point is that the EU negotiations continue to be a nonsensical mess.

Let’s take a step back from all the haranguing and examine something more influential.

The prime minister’s hypocrisy

Some friends continue to fume over what they call terrible hypocrisy. How can a Remainer lead a nation into Brexit?

My answer is simple – the British way.

But first, consider the opposite way to gain some perspective. Germany, Austria, Hungary, Finland, France, Italy, Netherlands and many more did not listen to their populations. They opened their borders, internal and external, handed power over to the EU, accepted the euro and the European Central Bank (ECB).

The result is a boom in populist and extreme parties in their parliaments. The Alternative für Deutschland (AfD) party is in opposition, a powerful position in administering the German government. Austria’s right wing is in government. Whatever ends up emerging in Italy is going to be extraordinary. In eastern Europe, it’s even worse.

The Germans have cottoned on recently and changed tack. Angela Merkel’s interior minister Horst Seehoffer is calling for the suspension of the Schengen zone, internal border controls and a change of heart on accepting Islam in Germany. Most interesting of all, he has rebuked the EU on being patronising and overbearing when it comes to pressuring EU countries to accept migrants.

As the AfD pointed out, he’s adopted their policies. In fact, the AfD’s line of argument has been that point for a long time. Slowly but steadily the major parties are adopting the AfD’s policies. But it wasn’t’ enough to save them from an AfD uprising in the last election.

Meanwhile, what happened in the UK? Have we had a new right or left-wing party taking government or forming opposition?

UKIP’s share of the vote fell – it’s facing bankruptcy instead of popularity according to the papers. I haven’t heard anything about the Lib Dems since the election. Yes, Labour is looking pretty radical. But that’s causing plenty of internal strife in the party. And it’s nothing like the EU’s populist parties.

Was ours the only nation in Europe where the uprising of a new force in politics failed to occur? Where populist parties lost their share of the vote? It’s the only one I can think of. That’s quite an achievement.

And yet the media declares the precise opposite. They warn about the effects of Brexit on the political system – populism is on the rise in the UK!

But it’s the very opposite that’s actually happened. We’re back to Labour and the Tories once more. It was a consolidating event for the two main parties.

Now I’m not a fan of either. But they’re making Britain look good next to the rest of Europe.

Not hypocrisy, continuity

What’s the difference between us and Europe?

In Britain, the existing political parties shifted to acknowledge the will of the people. And dramatically so. They valued the principle of the will of the people over their own principles.

The general point here is just the sort of thing a crusty old man would intuitively understand while the young and politically active are mystified or furious about it. Friedrich A Hayek explained it in some of his books too. Something about odd traditions having value, even if we can’t get our around why or how.

Yes, the level of hypocrisy is off the charts. Remainers as chancellor and PM, negotiating with the EU. It’s outrageous and bizarre for all concerned.

But this is the whole point. Britain’s political system values stability over principles. The power of convention is a good example of that. That’s why prime ministers resign when they get a policy terribly wrong, as David Cameron did. Even though he was replaced by a Remainer.

It’s this sort of thing that makes our internal politics seem arcane and non-sensical to foreigners and the young. It’s also why Britain clashed with the EU. Imagine if the EU’s leaders resigned each time a nation rejected their latest treaty. Europe would be a very different place.

But when it comes to the rising tide of populist parties across Europe and the US, Britain’s system worked once again to deliver stability instead.

The Bank of England’s (BoE) history bares all this out even better than our politics, by the way. For most of the Old Lady’s history, its leaders were not economists or bankers. They couldn’t explain themselves or their policies.

This infuriated politicians, journalists and economists like John Maynard Keynes himself. Foreigners who tried to model their own central banks on the BoE were baffled because it made no discernible sense. People couldn’t explain why they followed the conventions and traditions, they just knew they worked. And so the BoE oversaw Britain’s emergence as the dominant financial power.

After the bank became staffed by professionals and economists, and was nationalised, Britain went off the rails in terms of financial and economic policy. It got caught up in the battle between Keynesianism and Monetarism, leading to mistakes.

Back to politics and Brexit. Britain’s leaders have placed the will of their people before their own better judgement. What other political system has that feature? Perhaps the Swiss, where direct democracy plays a part?

This system is what’s keeping British politics stable in the face of Brexit while Europe is a mess thanks to the difficulty of leaving the EU in the face of bad policy. They’re cats in a bag.

The irony is of course that Britain’s traumatic experience with the EU and its many forbears is what kept us sceptical of joining. And that trauma was self-imposed with poor economic policy in the 60s and 70s.

The failure of Britain’s participation in Europe’s many currency schemes, from the currency snake to the Exchange Rate Mechanism (ERM), kept us out of the euro. The ERM was known as the Eternal Recession Machine for the same reasons Italy is suffering under the euro.

Tellingly, Italy was the other nation to abandon Europe’s wacky currency schemes too. And now it’s considering leaving the euro.

Europe’s biggest threat is the euro

Despite being utterly mystified by the new transition deal with the EU, I think it will prove to be a good thing for one simple reason. Europe is in deep trouble. And so continuing negotiations with the bloc as long as possible strengthens Britain’s position in those negotiations.

The latest threat on the continent is a change to European monetary policy. As if things aren’t bad enough, the ECB is reportedly looking to raise interest rates earlier than expected.

The short version is that a German is replacing an Italian as the of the ECB in October next year. Mario Draghi might make it through his entire term without increasing interest rates once. And his replacement Jens Weidmann will begin to raise them almost immediately. Stereotypes come from somewhere…

That was the consensus. But a rumour hit the market that interest rate increases could be coming in the beginning of 2019 instead of the end. The euro surged as higher rates make it more attractive.

All this spells disaster for the likes of Italy. Higher interest rates and a higher euro are precisely what it doesn’t need. But Germany does, so they’re coming.

Coming years will demonstrate that Britain’s decision to remain outside the euro and adopt a floating exchange rate was by far the more important decision. Brexit will appear symbolic.

Our exchange rate absorbed the crisis of Brexit. And the Bank of England has none of the restrictions of the ECB. Not to mentions setting monetary policy to suit a far more homogeneous group of nations than the ECB’s.

So while Europe flounders, Britain is on course to do well. But I didn’t realise just how well until I read this.

Back in the mid 70s, when Britain was wrestling with the International Monetary Fund over its bailout, the North Sea oil discoveries changed the nature of the game. They gave Britain a trump card up its sleeve.

The oil crisis was one of the biggest problems facing the nation at the time. Becoming an energy exporter promised to resolve much of the structural problem. Not to mention what the boom did for the oil stocks of British investors.

Well, we’re in for the same story. A new type of energy is set to boom in Britain. This time it’s in an even less likely place than the North Sea. The last time I was there, my suitcase was too big to fit in the bed and breakfast’s hallway.

But what sits under that B&B could soon be worth absurd amounts of money to you. 

Eoin Treacy is calling it Harnessing Hell Fire.

Until next time,

Nick Hubble
Capital & Conflict