I have spent the last few days in Geneva – I travel to Switzerland regularly as part of my job – and needless to say, the prospect of the UK leaving the European Union comes up a lot in the Alpine state. For good reason. Switzerland is not in the European Union (that country has more sense), is unlikely ever to want to do so, and has a broadly amicable relationship with its neighbours, apart from when they aggressively seek to break down Swiss bank secrecy laws. (Such laws are, for cross-border purposes, no longer effective, although within Switzerland, the laws remain on the statute book and there are no plans as far as I know for lawmakers in Berne to repeal them.) By and large, Switzerland’s financial services industry is still in good health, although like many other centres, onshore as well as offshore, has had to contend with mass of regulation, some of it home-grown. (Swiss banks operate under unusually severe capital adequacy rules and the country now has negative interest rates, which hits banks’ margins.)
The Swiss trip got me thinking about London’s position in the EU referendum. One regular argument you might read about in the financial pages of pro-EU papers such as the Financial Times, for example, is of how if Britain quits, this will hurt London’s financial sector (aka “The City”), because we will no longer be able to “passport” financial services run from London across the whole of the EU. This seems to be a greatly exaggerated worry. For example, in many cases with the fund management industry, fund structures known as UCITS (the acronym is for a long set of French words), which can be bought and sold across the EU – and beyond – and issued in different currency share classes, are typically registered in Luxembourg and Dublin. There are now Chinese yuan share classes in UCITS funds, and China is not, bless its cotton socks, in the EU. Many of the portfolios held in these pan-European structures are managed by investment whizzes in London, and indeed, Zurich, and Geneva, or Hong Kong. So it seems unlikely, to pick this one example, that leaving the EU means disaster. If the UK leaves the EU, then some non-EU member state banks, wealth managers and insurers might have to set up onshore, representative offices in the EU, which is irksome, but hardly seismic. Similarly, the European Union directive affecting hedge funds and private equity, called AIFMD, applies to the European Union, but non-EU jurisdictions such as Jersey and Guernsey have acquired the ability to be treated as “equivalent” for the purpose of this directive.
And that leads to a broader point about rules, treaties and standards. To trade, transact and interact, one doesn’t need to have centralised, top-down legal rules and a single political entity, such as the EU, but to have – and the is the crucial bit – mutual recognition of another’s standards. If the the UK quits the EU, then German carmakers will need to recognise and honour UK motor manufacture rules (which would be sensible for Germany to do, given it is a net exporter to the UK) and the UK would have to return the favour. And so on and so on. Australia has to acknowledge our rules, and we theirs. We see this sort of mutual recognition in all fields of life. Over time, of course, a wider set of rules can be adopted, rather as languages and standards around computer software do.
To trade with people living and working in the EU, it is not necessary to be married to an undemocratic, clunky structure in Brussels. Ending that misconception will not just help win the case for UK exit, it might also encourage people to think more clearly about the very structures of power that we assume are necessary for economic activity to happen. So regardless of what happens next week, I hope it might galvanise thinking about proper authority, and the role of transnational organisations.
On some specific issues around trade, the City, and so forth, this article by Conservative MP and former Cabinet minister, Peter Lilley, is simply excellent. The Adam Smith Institute has a good piece on the classical liberal case for leave.
There may be some specific consequences that are adverse – but within certain limits. For example, take those strange creatures, “non-doms” – persons who live for a period in the UK and enjoy freedom from UK tax on their worldwide income but who have to pay a levy to enjoy this status. Some of these non-doms live in the UK because it also gives them the freedom to roam around the EU. And there are people buying “investment visas” (a sort of market for passports) who want to get a British visa not because of our marvellous weather, but to roam around the EU. They may choose to get a “golden visa” in Spain or Malta instead.
But in the broad scheme of things, losing money from rich overseas investors using the UK as an entrepot doesn’t seem such a massive blow, given the overall balance. If we leave the EU, the City will not have the impost of a pan-European transaction tax (aka “Tobin tax”) on financial transactions that hits London disproportionately hard and which was imposed by qualified majority rule in the EU. The UK financial services sector might be spared the horrors of a massive lump of “investor protection” (sarcasm alert!) regulation due to hit the market, called MiFID II, or at the very least we will be able to haggle around whether we need to respect all of it to sell financial services into the EU. Some of this regulatory crap will still be a part of our lives, but there will be a better chance of getting changes to how the UK is affected via the democratic process, however imperfect that is.
Given how many treaties and transnational pacts are decided at a global, rather than purely European, level, it also worth noting that in or out of the EU, a good deal of what goes on will not change all that much. But one big benefit for me is that however foolish UK politicians continue to be, and however onerous certain rules are, UK lawmakers will not be able to use EU membership as a handy excuse for something they want to do anyway, such as “Dear constituent, I agree this rule is mad but we cannot do anything because it is in EU law number xxxxxx.” Instead, our elected representatives will need to advocate new laws, or advocate repealing laws, by appealing to the merits of a case. It might also improve the calibre of people who choose to go into UK politics in the first place.
I am voting Leave.
I understood only part of this post but thank you for it anyway. So much is said, or rather shouted, about the financial sector that is obviously, even to my uneducated ears, just verbalised prejudice from one side or another. It’s good to hear the views of someone involved.
Strongly agree about the point at the end about the EU as an excuse for stupid stuff that British politicians want to do but do not now feel they need to argue for. They merely tell lies about how the EU demands whatever it is they want to do. This practice is sometimes offered as proof that the EU is not that bad. But, it is that bad for us Brits, if this is how our politicians use it to screw us around.
Kinda. When I joined Credit Suisse in 2010 I had the account opened by an individual who remained my personal banker for several years, whom I could contact directly by email or phone and ask him to do stuff with my account. It was a level of service which had long-since vanished from the banks in other countries. However, sometime around 2014 Credit Suisse changed and introduced a “Customer Service Desk” approach like everywhere else, which has sent standards through the floor. To say I was disappointed is a vast understatement. I’d probably have closed the account were it not for the fact I’m paid in CHF and I have an apartment in France 30mins from Geneva.
What I have found ironic is that a lot of those who want to Remain can’t stand the City and want the EU to curb its “excesses”.
Reminds me of a report I read many years ago of the time when the Swiss and French made a small adjustment to their border, which led to one property, iirc a hotel, being moved into France, with no compensation. The consequence of this was that the property plunged in value and the owner was ruined as his mortgage was called in by the Swiss bank, and he had to sell at a loss. He reportedly committed suicide, very sad. It just goes to show the value of that border to Switzerland.
I’m not seeing anything on risk from plausible blacklisting “punishment” venues
from “But…but… it will cut into my rent-seeking usury “fee” structure!” actors. (They ALWAYS invent a new
workreach around)“Our hands are tied” Indeed, in the US, That’s why I’m interested in seeing a divorce (conscious decoupling) between academia bursars, and the treasury department, as well as between the Executive Branch (in toto)and the “United” Nations.
But THAT’S just me, and just the US.
I banked with Credit Suisse since the 1980’s in Zug and Zurich (business and private respectively). In 2014 I closed it out and moved out of Switzerland entirely. Their customer service went from stellar to something comperable to a UK high street branch of NatWest.
In order to have mutual recognition of standards they will necessarily need to fairly close to each other, i.e. on an “as good as” basis; we could hardly place much stricter controls on goods produced domestically than those that are imported from overseas. It is therefore useful to have a common set of standards, which are set globally. These are ‘top-down legal rules’ albeit not necessarily by a political entity (as opposed to a purely bureaucratic entity). I understand the various international bodies such as CODEX operate on a unanimous vote basis, which is the proper way of passing any rule. With that background, being in the EEA is very useful, and indeed maybe it could become a World Economic Area in due course. Leaving the EEA, which is what ‘Vote Leave’ have said that they want to do, would hardly impoverish the UK long term, but it would make the transition more disruptive. People forget that places like Switzerland (which is not in the EEA) did not develop their economies overnight, but evolved to suit their circumstances. Leaving the EEA would be a reasonably abrupt change, and people are right to be fearful of such a change.
In any event, the referendum is about whether we should leave the EU, not the EEA, so we would go down the Norway route, if the result is ‘leave’.
“Some of these non-doms live in the UK because it also gives them the freedom to roam around the EU.”
UK citizens, or other non-EU passport holders resident in the UK, are not and never have been free to roam around the EU. The open borders Schengen Convention did not come into effect until 1990 in any case, and the UK (and Ireland) opted out. There still is a border between the UK and the first EU Country of entry and a passport is needed to get into the EU then back into the UK, and that will not change post Brexit.
Once in the EU both UK and non-UK passport holders are free to roam because there are no internal passport controls.
The fallacy that there are universal product standards across the EU exists only in the minds of those who have never traded within the EU. First, the EC Directives are often delayed for years in different Countries before being ratified by national parliaments, then they are interpreted differently, applied and policed differently – in some cases not at all.
The so-called Single Market exists only on paper, not in reality.
Now I really wish I’d have made it to one of the Samizdata shindigs: we could have had a grumble about this together.
It just goes to show the value of that border to Switzerland.
Yeah, but a lot of people work on the Swiss side and live on the French side. Provided you don’t have to earn money in France, the French side is a better to live in. It’s not as unfathomly boring as Geneva, for starters.
An excellent essay, Johnathan. I hope it gets wider exposure than just this one blog. Can you get it published somewhere?
PeterT, I disagree about the need for “a common set of standards”, and especially one which is imposed top-down. All that is necessary is that the different rules be understood, and for foreign companies to agree to accept them if they want domestic sales. For example, within the US, California has different rules for some things, such as automobile emissions standards and gasoline mixes. Yet somehow we manage to get along. Oil companies create different fuel mixes for that state, since it’s such a large market. Were it not, the state would be forced to adopt different standards or do without gasoline. As an illustration of that (in an entirely different arena), some years ago a few states had some rather draconian laws regarding consumer loans. When major banks and lenders withdrew from those states they made some modifications to the law. No common set of standards is necessary, although it does make life somewhat easier for large companies operating over many regions, which is why they advocate for such. But that’s not sufficient reason to impose some supra-national regulations on everybody. Standards which are sensible and widely accepted will evolve naturally.
Tim,
How do income and social security taxes work for the frontier-crosses living in France but working in Switzerland? e.g. Do you pay Swiss and offset vs French taxes? I can’t remember what they do along the Irish border, or will do along the Scottish-English border.
To back up JP’s and my point about the EU being used as an excuse by our national government for things they want to do, here is architect Rem Koolhaas, arguing against Brexit, saying that it’s not just Brit politicians who do this. They all do this:
“It is the nations and prime ministers that take the decisions, but because of this myth of Brussels, they are also able to blame Brussels for the decisions they took themselves,” Koolhaas added in another BBC interview.
Here: http://www.dezeen.com/2016/06/17/rem-koolhaas-speaks-out-against-brexit-eu-referendum/
As I said, Koolhaas thinks this is an argument against Brexit. I say that it is an argument for Brexit.
Another recent Dezeen piece revealed that ninety percent of fashion designers oppose Brexit.
Two points
1. The ‘It would be disaster to leave because of RULES’ argument we hear so often used.
Rules are literally what you make them. Rules don’t exist except within the domain of the mind. Rules are not tigers. They can be changed at whim and will. No nation(s) need a common language or common currency or a common banking system in order to do business. Even very productive and profitable business. America does business with China every day, and no tigers are harmed in the process. 😉
2. I think most intelligent people and places (where intelligent people reside) are watching for the brexit vote with bated breath. If, and I’m hoping when, England leaves the EU, I expect France and a few other nations bail as well because then it’s they that will be expected to do the heavy lifting for the more pathetic, parasitic nations. But alas, the American “news cycle” panders to the stupid and numerous, not the intelligent and rare. “We’re” more concerned with Trump’s latest verbal gaffs, and whether Hillary will indeed ever pay for her blatant crimes or will be rewarded with the highest office, perhaps anywhere instead.
I heard on fox news radio yesterday during a news break that England will soon be voting on whether Britain leaves the UK. Yes you read that right, the fucking UK. And no corrections were mentioned later.
American “news cycles” are ran by blithering idiots.
P.S. I supposed I’m forced to add myself to the idiot list as well for typing England instead of Britain a few times in the message above. 😉
PeterT.
People have been engaging trade for thousands of years without a “common set of standards”. Now is no different. The best than can be argued for a ‘common set of standards’ is that it FACILITATES trade only. It isn’t necessary, only, arguably, useful.
Switzerland withdraws application to EU: only lunatics would want to join.
JohnW, I wasn’t aware that Switzerland even had an EU application pending. It’s good to see that they’ve come to their senses. But since that application was “long-standing”, one wonders why the EU didn’t get off its backside and approve the application while it had the chance. Once they had Switzerland in their clutches it would have been very difficult for it to extricate itself, and it would have been a marvelous cash cow. I guess the incompetence there runs very deep indeed.
If the the UK quits the EU, then German carmakers will need to recognise and honour UK motor manufacture rules (which would be sensible for Germany to do, given it is a net exporter to the UK) and the UK would have to return the favour.
But how could that possibly work?!
It’s not like Germans sell cars all across the world, or Americans sell products in Europe*, right?!
(* Well, US carmakers seem to rarely sell USDM models/names in Europe, though I hear it’s not unknown, like the recent popularity of the Mustang in Germany; but mostly it’s US carmakers having European divisions doing Euro-only cars.)
“Remain” is running a little scared.
I have no dog in this fight, but just for information, here’s a line from Blackrock on UCITS:
“a UCITS is a mutual fund based in the European Union. UCITS stands for “Undertakings for Collective Investment in Transferable Securities” and UCITS funds can be sold to any investor within the European Union under a harmonised regulatory regime.”
Ian,
That surely has to be a spoof, they can’t be that disingenuous, or can they?
The ethical dilemma now is whether or not to contribute.
I’ve just found out that you can see the distribution of support for the petition on a map. It does look rather as if grotty London and Brighton are the only areas of support.
I wonder if this might overlay with ‘postal vote’ distribution?
Regarding California and auto gas, the situation is actually quite messy. First, CA is a big enough market, and (because of ports and it’s own crude industry) had an existing refining industry, that when the new state rules started, the gas was mostly made in-state.
Therefore there are limited supplies for CA made elsewhere. Then, when the gas blend changes from summer to winter or back, many refiners use the switch-over time to do maintenance. Sometimes they don’t come back into production quickly, which leads to temporary but significant shortages.
The one predictable thing about this cycle is that the CA legislature will hold hearing investigating price-gouging (which is always “unexpected”) every six months.
The rule went statewide even though it is really only useful in the SF bay area and the LA basin. The market in those two areas was not quite big enough to make for affordable special blends, so the CA Leg, in its wisdom, imposed the rules on the whole state.
Fair enough, Fred, but my point remains: the US didn’t need to set “top-down” uniform gas-mix regulations across the entire country, and in fact permits state variations, yet the gasoline industry manages to cope. The was merely intended as a refutation of PeterT’s dogmatic assertion of the need for “a common set of standards”. The claim is risible.
The problem is that government gets in the way of free trade. It is better to have a common set of rules than a plethora; best of all is to have none but that won’t happen. If you produce goods in the UK to EEA standards, and this is verified by the UK regulators, then you can sell your good throughout the EEA. That is the benefit. Not a very sexy reason to remain the single market, but there you have it.
This is also a response to Laird and John B.
If you hadn’t guessed I am voting Leave too.
The Swiss application was not ratified as it was rejected in a referendum, ages ago. 1992 according to Breitbart.
I think the “City as we have known it”, the massively over grown Financial Industry that we have seen grow up since 1986, will have a really nasty time as the Credit Bubble economy finally goes. It will crash back down to a size more in proportion to the real economy – and the real economy will also have a really nasty time over the next few years.
The question is will things be worse for “The City” (and the rest of us) inside the E.U. or with independence?
I believe that things will be less bad with independence – worse inside the E.U.
Re: the Petition above:
I was a bit shocked to read the phrase “the settled will of such a large majority in the House of Commons”. It led me to wonder if there isn’t a more profound difference between your British system and mine (the USA) than I had appreciated.
Here’s the tell: When y’all elect someone to government, are you electing representatives, or are you electing leaders?
The City will thrive outside the E.U.
Barring Bros financed the purchase of Louisiana.
bobby b, June 18, 2016 at 3:10 am: ‘When y’all elect someone to government, are you electing representatives, or are you electing leaders?”
Historically, there is indeed a difference. Since the time of Burke, a British MP has emphatically _not_ been bound to obey the instructions of his electors, whether given before or after election. In olden time, the electors were supposed to be choosing someone they knew and (in some sense) trusted, who would then get on with it. The point was debated in the later 1700s and the house of commons eventually spelt out clearly its view on the subject. The US split at around that time and its tradition has some differences in theory and some in practice.
A party’s manifesto is a bit different. It is a promise given to the voters – and also to the members and MPs – and the party has a moral (only) duty to do what is reasonable to carry it out. Thus the Tory party had a moral duty to hold the referendum if they had a majority in parliament; this they have done. They also have a moral duty to use the remaining years of their majority to enforce the referendum’s result. That is one of the reasons why Leave specified a four-year timescale completing by May 2020, the expected date of the next election. (It could of course be done a lot faster.)
In the US, primaries both reflect and enforce a somewhat different tradition. In the UK, an MP tolerated by their party can only be removed by voting for the opposition. Primaries give voters another way.
IIUC, the position of Tory MPs threatening to vote against enforcing Brexit after a referendum win is similar to that of a U.S. convention delegate who threatened to vote against Clinton or Trump despite being elected for them. No actual criminal penalty would be incurred, but voters could reasonably expect to be annoyed at the violation of a solemn promise that went well beyond the generality of political promises.
How do income and social security taxes work for the frontier-crosses living in France but working in Switzerland? e.g. Do you pay Swiss and offset vs French taxes? I can’t remember what they do along the Irish border, or will do along the Scottish-English border.
I live in Paris so it doesn’t apply to me, but for those working in the canton of Geneva and living in France, the Swiss authorities pay the taxes to the French directly – which is very useful. For those living in other cantons it’s a bit more complicated I think.
(Almost) all countries have double-taxation treaties, which is (mainly 🙂 ) not so you can be taxed twice but so you can avoid being taxed twice. If an EU person works for less than half the financial year in Switzerland then they are taxed in their home country. I never found out what happened if the you were in one place for half of a UK financial year (April to April) but in another for half of a Swiss financial year (January – January). I could find nothing to clarify in the treaty, and judged it more prudent not to open that can of worms.
Here, as in general, all these issues are resolvable and existing templates to resolve them already apply or are easy to adopt.
Laird: You are right, the gasoline industry does cope. I don’t even mind the periodic price swings, since I believe in the law of supply and demand.
What irks me is the idiocy I have to put up with from the CA government about this. They appear (who know what is REALLY going on in their little brains) to think they can impose whatever rules they like, and there will be no adverse consequences.
A much worse example: Remember Enron? Sure you do. Well, Enron was in the business of brokering energy, primarily electricity. Their entire business existed because of the insane semi-regulated / semi-deregulated rules in CA. For instance, a prohibition on most long-term or futures fuel contracts by power generators. I can’t remember offhand what the stated rationale for this was, but the forseeable effect (unless you are a legislator) is to drive more of their business to the spot markets. Which are, by their nature, vastly more volatile, and with strong high-cost tendencies. Again, the CA Leg “investigated” why there were so many price bumps and brownouts – they just never investigated their own role in the mess.
(Not to praise Enron, of course. They were a bunch of cynical sleazes such as are always attracted to this kind of gov-created arbitrage opportunity. As Glenn Reynolds would say, “unexpectedly.”)
Fred, no argument from me there. California is an idiocracy governed by utter morons, and that can only be a reflection of the populace in general. (The few exceptions seem to be leaving the state, which will only make matters worse.)
Now Laird, a little more precision and less hyperbole, please. I myself “know” (online) not one but TWO non-morons who persist in living in California. And then there’s VDH, although he has his family’s farm there and seems, understandbly, to be rather attached to it.
/tease
Laird, belatedly, thanks for your kind words. Given your own knowledge on such topics, that means a lot.
I have spread this article around via Facebook. I am writing an editorial for my own day-job publication and hope to have this out soon. I can post up a (paywall-protected) link in due course.
As Natalie says, there is a lot of commentary from people that is little better than propaganda. What I liked about the Peter Lilley comment was the close attention to detail from someone who has really studied this stuff, lived it, and dealt with it.
We shall see what happens. My gut says it will be a vote to remain, just.
The Wall Street Journal today published an article about normally-reticent London hedge funds lining up on both sides of the Brexit issue. (Sorry it’s behind a paywall.) That was interesting to see, since the banks seem to be solidly lined up in the “Remain” camp.
That same issue contained an editorial by the former CEO of BP, asserting that a Brexit vote would “leave Great Britain diminished on the world stage” and reduce it “to the level of a second- or third-tier nation.” How this would happen, given Britain’s inability to influence EU policies, and its near-complete absence from the “world state” as a direct consequence of its membership in the EU, is never explained. Instead, he resorts to emotional appeals and ludicrous economic claims. It is merely the ranting of a multinationalist more concerned with preserving the comfortable status quo than in restoring Britain’s sovereignty or its people’s freedoms. And the issue also includes a laudatory review of a new book claiming to provide “a conservative case for the EU” (and citing Friedrich von Hayek!). It’s pretty clear where the Journal’s sympathies lie (as if there was ever any question about that).
Julie,
(tossing modesty to the wind, he says:) Now you know three non-moron Californians.
My excuse is that I was born here well before it went insane. Why am I still here? That’s a tougher question. Perhaps I should take a page from my well-to-do liberal brother-in-law and get myself a retirement home in a tax-haven like Nevada.