It has been a week since the UK woke up to a Vote Leave victory. Yet it is now also waking up to a new reality of political instability, economic uncertainty and broken promises. As of 1st of July, FTSE 350 has lost a total value of £40bn and the Eurostoxx Banks index has suffered a loss of €158bn since the Vote leave victory was announced on June the 24th. Post-Brexit, world stockmarkets fell by over $3tn. The UK’s pension fund deficit jumped by £80bn, hitting a new record of £900bn amid increasing concerns about the long-term financial health of European and UK pension funds. The need for the ECB and the Bank of England to keep interest rates low will only mean further deficit increases for pension funds, with some warnings that many pension funds will implode in the next few years. While FTSE 100 has started to recover, the UK is on the cusp of a recession. From a healthy, recovering economy pre-referendum, the UK now has wiped all recent gains and faces an uncertain future and has been bumped down to a lower growth trajectory.
With only a day left until the EU referendum, it’s more important than ever to be well-informed. Therefore, we have put together an easy-to-read overview of the major issues at stake. We have looked through both pro-Remain and pro-Brexit arguments in newspapers, expert opinions and political statements and digested them for your convenience. Given our belief that the state should look after its people, particularly ordinary citizens, we have tried to look at the debate by keeping in mind what would be in the best interests of the common man.
The Panama Papers sparked a loud, but rather limited debate on the Norway’s Sovereign Wealth Fund and its use of tax havens. Here we present some new facts, discuss what risks the Fund really faces and suggest concrete steps for reform.
Taken together, the Oil Fund’s direct investments in tax havens amount to as much as 8%-10% of its total value. These include its investments in real estate through subsidiaries in Luxembourg and Delaware, fund managers who use tax havens and direct stakes in companies registered offshore. Most discussions so far have focussed on getting the Fund to reduce or eliminate this kind of direct use of tax havens.
While this is important, the largest financial, reputation and ethical risks for the Fund arise indirectly from its investments in companies that use tax havens and aggressive tax avoidance strategies.
The media is abuzz with hyperbole calling the Greek agreement to work toward a deal “humiliating”, “capitulation”, “surrender” or worse, “a coup”. Weighty names such as Nobel Laureates Krugman and Stiglitz have also endorsed the #ThisIsACoup hasthtag that has been trending on Twitter. The idea behind all of these is the supposed “near total” loss of Greek sovereignty. In particular, the idea that Greek public assets would be handed over to an agency under EU supervision for privatisation has provoked particular fury. Another idea that is doing the rounds is that the creditors exacted revenge for Tsipras having dared to call a referendum. The statement that the conditions under the new programme are much harsher than what was on offer has been repeated ad infinitum.
The third narrative floating around is one that holds Syriza and Tsipras primarily responsible for Greece’s current problems. The Eurogroup statement, for example, seems to blame doubts about debt sustainability primarily on the failure of Greeks to implement policies over the past few months. A particularly pernicious version of this is the politically tone-deaf and highly unprofessional tweet from Peter Kazimir, the Slovak Finance Minister, who said the agreement was tough for Athens because of their “Greek Spring”.
On pure economics, Syriza got it mostly right both in terms of the diagnoses of the crisis and on what micro and macro level steps were needed to restore the Greek economy. But its big mistake was to assume that economic arguments could prevail over ideology and realpolitik. Another was its failure to convince its Eurozone counterparts that it would actually deliver on the promises it made. While Syriza could be excused for its naiveté’, its creditors get no such free pass. Their unwillingness to admit mistakes, keep promises for further debt relief and focus on petty parochial politics has once again trampled upon Greek democracy and sensible economic policy, and caused great harm to the European Project.
Unless they are willing to give Greece a fair chance over the next few days, the damage will be irreparable. And it is not just Greeks who will have to live with the consequences.