Financial markets are notorious for irrational mood swings. But even by past standards, the recent wild gyrations in both stocks and currencies seem to have set a new record for ludicrousness.
The source of the panic has, of course, been the United Kingdom’s referendum vote last week to pull out of the European Union.
The first thing to note is that markets should have been prepared for the outcome. After all, in the last weeks of the campaign, opinion polls indicated that the two sides were running neck and neck. It was a fair bet moreover that prospective Leave voters were being systematically undercounted. After all, as they had long been portrayed as ignoramuses, xenophobes, and even outright racists by the London establishment, many of them undoubtedly felt cowed into keeping their true opinions from the pollsters. In the circumstances, financial traders would have been prudent to maintain balanced books going into the vote. Judging by the post-vote gyrations, which extended even to oil and other commodities, most traders seem to have been badly blindsided.
Yet not only was a Leave vote foreseeable but some of us foresaw it. Even as early as 2013, it was pretty obvious that in offering a referendum the UK’s pro-EU Prime Minister David Cameron was tempting fate. In a commentary at Forbes in February of that year, I wrote:
British exasperation with the EU has the potential to shake the latter-day world order. A symptom of the strains is that the UK’s pro-EU Prime Minister, David Cameron, has felt obliged to promise the British electorate a straight in-out referendum on British membership of the EU. Cameron probably doesn’t realize it yet but he may just have touched off a geopolitical avalanche. Certainly his referendum is a destabilizing – if in my view highly welcome – move at a time when the world economic order has rarely seemed more precarious. That order is founded on an overtly anti-democratic commitment to globalism on the part of the foreign policy elites of the UK and United States. Yet globalism is not working and the evidence of its failure mounts daily.
I returned to the subject several times, not least in a commentary in May 2014 whose heading – Suddenly The EU’s Break-Up Has Moved From A Long Shot To A Probability – said it all. Analyzing local election results that testified to a strong anti-EU undertow, I wrote:
Although British voters have for decades wanted out of the European Union, that possibility has hitherto been expertly forestalled by a less-than-democratic left-right alliance of London-based elites. Now suddenly all bets are off. In local council elections yesterday, England’s long-suffering grass-roots voters finally rose up. They snubbed both main parties, the Conservatives and Labor, to support the United Kingdom Independence Party (UKIP)….. Yesterday’s vote…. seems likely to trigger a chain-reaction in which it becomes impossible for the London elites any longer to hold out Canute-like against the democratic will.
It is now abundantly clear to even his most committed supporters that Cameron proved too clever by half. His agenda in offering the referendum was merely the parochial one of buying short-term peace among feuding factions in his Conservative party. Although the party’s right wing had long wanted out of the EU, he evidently calculated that with the help of the opposition Labor party he could pull off an easy victory for the Remain camp.
What he did not understand was that he was living in a bubble. He is a globalist in a London where almost all “respectable” opinion is globalist. The globalist fashion has been long been propagated by the City, as the London financial district is known. As City types tend to pay themselves well (despite the fact that their money management services are often of mediocre or even questionable quality), they elicit considerable misplaced obeisance from the more naïve of their neighbors in London’s better residential districts.
So much so that even the higher reaches of the Labor party have long been globalist. In the circumstances therefore it was probably easy for Cameron to forget that countless ordinary Labor voters not only have never shared this mindset but had long ago come to the view that the UK’s entry into the EU in 1973 was the first step towards a globalist future that has proved disastrous for the UK’s once world-leading manufacturing industries. His relative youth (he is not yet 50) moreover may have blinded him to the fact that older voters remember a time when, in many categories, British manufacturers led the world. In shipbuilding, for instance, British yards accounted for around half of all the world’s output in the first fifteen years after World War II. Even more to the point, older Britons remember when it was the UK, not Germany, still less Japan, that built the best small cars. In fact in the 1950s, the UK was the world’s largest auto exporter.
In such once-booming, but now long depressed, industrial cities as Manchester, Newcastle, Sheffield, Birmingham, and Swansea, the sense of alienation has been palpable since as far back as the 1980s. While in general elections disaffected Labor voters may have had nowhere to go but the party they have always supported, the referendum finally gave them a chance to second-guess the Labor leadership – and they took it.
At the end of the day, few in the British establishment have emerged unscathed from the last week. Cameron has already, with a commendable sense of honor, fallen on his sword. His finance minister George Osborne, who up to the referendum had been seen as Cameron’s most likely successor, has not resigned but will probably face a long spell in the political wilderness once Cameron’s successor is chosen.
A related question is what will happen to the Bank of England’s governor Mark Carney. As I pointed out last week, he crossed a line in coming out so vigorously in support of the Remain camp. His efforts to calm markets in the wake of the vote, however, have met with general media approval and seem to have proved of real value. The betting is he will survive to fight another day.
Eamonn Fingleton is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, is the Key to Future Prosperity (Boston: Houghton Mifflin, 1999).