Late last month one of the most important speeches on Europe ever made by a British Prime was presented by David Cameron to a central London audience at an event hosted by Bloomberg. The speech sent shock-waves throughout the European establishment. Salient excerpts are quoted below courtesy of “The Independent.co.uk”.
In essence, Mr. Cameron argued that Europe was not working and that it must change. To achieve the changes required he announced that Great Britain would renegotiate the totality of its relationship with the European Union. Following this renegotiation he proposed that should a Conservative Government be re- elected circa 2015 it would present a referendum to the British people. Should the people of Britain elect to do so, Britain would leave the union. Irish Prime Minister Enda Kenny, who currently heads the European Presidency, stated that if this proposition came to fruition “it would be a “catastrophe”.
Many who were expecting the speech and were somewhat prepared were still astonished at Cameron’s bold proposal that Britain might actually walk away from the EU.
Mature observers are of the view that there is no real crisis. They say that the possibility of the Conservative Party actually winning the next British general election are remote. Therefore they reckon the proposed referendum will never see the light of day. I am not so sure crisis wise as I believe the law of “unintended consequences” may begin to apply.
At the very least the fact that Britain wishes to withdraw powers from Europe means that for the next two years, while Cameron is in power, the whole European integration process will be thrown into abeyance. Given that he refuses to countenance any further abrogation of English power to Brussels he has basically placed the whole of Euroland “on hold”. Will Germany and France stand for this and allow any renegotiation? I don’t think so. The EU commission has no structure or mandate in place to execute such renegotiation. Thus from the get-go nobody in Europe actually knows how the British Prime Minister plans to proceed. This is where I see the problem. As Britain digs its heels in, to manipulate renegotiation, the rest of the Union may go on its merry way introducing new legislation. If Cameron is forced to veto such action the tensions within the Council of Ministers will rise. If the management of the European Union becomes more and more dysfunctional. Britain leaving the Union may become a self-fulfilling prophesy.
For Ireland the British position is particularly unwelcome. Ireland shares a border with England. The English market is the largest single Irish export destination. Should Britain actually leave the EU it is difficult to see how Ireland could stay within the European fold. Yet one of the main reasons why Ireland is the location of choice for many American multi-nationals is due of its central place within Europe. Prime Minister Kenny will have his work cut out over the next two years trying to balance this conundrum.
All in all Mr. Cameron’s speech has certainly thrown “the cat among the pigeons”. It appears that rather than getting its “act together” the European Project is becoming more and more complex. Thus in addition to the problems of chronic structural unemployment, lack of growth, a banking collapse and a failing Euro, a new layer of uncertainty has now been added. European politicians are beginning to show signs of exhaustion thus it is no wonder that among the major online bookies the odds of a final breakup of the European Union grow day by day.
“While there are some countries within the EU which are doing pretty well. Taken as a whole, Europe’s share of world output is projected to fall by almost a third in the next two decades. This is the competitiveness challenge – and much of our weakness in meeting it is self-inflicted.
Complex rules restricting our labour markets are not some naturally occurring phenomenon. Just as excessive regulation is not some external plague that's been visited on our businesses.
These problems have been around too long. And the progress in dealing with them, far too slow.
So let us use this moment, as the Dutch Prime Minister has recently suggested, to examine thoroughly what the EU as a whole should do and should stop doing.
In Britain we have already launched our balance of competences review – to give us an informed and objective analysis of where the EU helps and where it hampers.
Put simply, many ask “why can’t we just have what we voted to join – a common market?”
(The British people) see Treaty after Treaty changing the balance between Member States and the EU. And note they were never given a say.
Simply asking the British people to carry on accepting a European settlement over which they have had little choice is a path to ensuring that when the question is finally put – and at some stage it will have to be – it is much more likely that the British people will reject the EU.
That is why I am in favour of a referendum. I believe in confronting this issue – shaping it, leading the debate. Not simply hoping a difficult situation will go away.
The next Conservative Manifesto in 2015 will ask for a mandate from the British people for a Conservative Government to negotiate a new settlement with our European partners in the next Parliament………. It will be a relationship with the Single Market at its heart.
And when we have negotiated that new settlement, we will give the British people a referendum with a very simple in or out choice. To stay in the EU on these new terms; or come out altogether.
It will be an in-out referendum.
Legislation will be drafted before the next election. And if a Conservative Government is elected we will introduce the enabling legislation immediately and pass it by the end of that year. And we will complete this negotiation and hold this referendum within the first half of the next parliament.
It is time for the British people to have their say. It is time to settle this European question in British politics.
If we leave the EU, we cannot of course leave Europe. It will remain for many years our biggest market, and forever our geographical neighbourhood. We are tied by a complex web of legal commitments.
If we left the European Union, it would be a one-way ticket, not a return.”
The Stock Market in a “Technical Bull”
The market at the moment is at a fascinating juncture.
While the fundamental picture in the world economy is very unstable the market is powering higher. The technical breakout on the Dow Transports, which formed a “ line” throughout most of 2012, was so strong the first few trading days in January the Industrials and the broader market took heart and followed suit.
With the prospect that the magnificent bond bull run is finally coming to an end, trillions of “coupon dollars” are beginning to seek a new home and accordingly are starting to target equities. If the rising stock market brings back American consumer confidence and if this confidence helps the real estate market recover, all will be well.
However, if the fundamentals do not oblige great risk will have been priced into the market going forward. I therefore continue to advise clients to solidly purchase equities but wait until corrections occur before investing. I recommend that investors consider participating through index ultras at the moment because while the market continues to plow higher many fund managers are still unconvinced. Thus while the broad indices are strong many great growth stocks are still behaving bearishly. Investing in the Index ultras solves this problem.
Dow Transports: Weekly
Dow Industrials: Weekly
Charts: Courtesy of StockCharts.Com
