'Brexit': Liberation or Suicide?

On Thursday the 23^rd of June, a referendum will be held on whether Britain should remain a part of the European Union. This referendum will not only be one of the most significant events in British history, but also in Europe - James Rosanwo examines the key knock on effects of a potential vote in favour of Britain's exit.

The result of this impending vote could shape the future of the United Kingdom, as Scotland and Northern Ireland are heavily invested in Britain’s membership of the EU and will no doubt bring their own membership of the UK into question. The departure of a heavyweight member would certainly have negative effects on it’s the European Union’s dwindling economic stability.

The referendum was called after Mr Cameron completed his supposed renegotiation of Britain’s stance in the EU at the European Summit in Brussels, where he claims he has won concessions on behalf of Great Britain. However, many doubt it may do little to sway the result of the referendum in his favour. Soon after the announcement, many government ministers stated their intention to either back Mr Cameron’s campaign to remain in the EU or do the opposite, with high profile MPs, the likes of justice secretary Michael Gove and London mayor Boris Johnson, boldly reinforcing their discontent with remaining an EU member, pledging their allegiance to the “out” campaign.

The question of Britain's membership of the EU has created
a rift between key figures in the Conservative Party.

At the start of the year, the chances of “Brexit” seemed unlikely. However, recent events such as the European migration crisis and the incessant euro decline, seems to have many Britons favouring an exit. Whether, however, this is a good enough reason to opt for total economic uncertainty instead is debatable.

Mr Cameron has confirmed that if the British people decide to leave the EU, the UK would apply for withdrawal under Article 50 of the Lisbon treaty. Article 50 states that the EU countries’ would negotiate a new agreement with the withdrawing nation over a period of 2 years. It also specifies that the withdrawing state cannot participate in these discussions, so in essence the terms of the deal are established only By the EU. Hence it will be a process that will most likely not be quick or pleasant; neither will it yield results that would be favourable to Britain. One thing guaranteed is that the EU will be desperate to show that a decision to leave will not have a painless outcome.

Many opposed to remaining in the EU still maintain that Britain is being hindered by Europe, believing that  as a country free from the EU it would have an open Economy that would continue to trade with Europe and the rest of the world. Many have offered the Swiss and Norwegian models as  potential solutions:

The Swiss Model: Britain would emulate Switzerland and would negotiate trade treaties sector by sector.

The Norwegian Model: Britain leaves the EU but joins the European Economic Area, giving it access to the single market, with the exception of financial services but exempting it from EU rules on agriculture, fisheries and home affairs.

In practice, however, these models would be very difficult to implement. At the bare minimum, the EU would only allow access to the single market in return for obedience to rules Eurosceptics are so eager to escape, meaning they would still most likely demand free movement of people and big payments to its budget before permitting access to the market. Nonetheless, to these “Brexit” campaigners these hardships would be worth it, if it meant regaining independence from Europe and British sovereignty. 

Yet again, this supposed liberation is not as advantageous as it seems. In essence, Britain would be trading a greater power for a lesser one; in exchange for their newfound independence it would be relinquishing its ability to have any real influence in global issues. What is even more alarming is the threat posed to the EU and the West as a whole. Both Britain and the European Union would be significantly weaker, and less of an ally as separate entities. The strength of the EU is crucial to the West’s duty of maintaining global stability, an ordeal which is becoming more and more challenging given the ever persistent issues involving Russia, Syria, and North Africa etc. There’s no surprise why Russia’s Prime Minister Vladimir Putin would have no objection to ‘Brexit’, whereas America’s president Barack Obama has already urged the British people to vote to remain in the European Union.  

Britain's exit from the EU could further empower the already
dominant Germany.

Germany’s dominance in the EU would also monumentally increase, making them even more of an influence not just in Europe but on a global scale. Britain, on the other hand, would be on the sidelines outside the EU, free from but still in fact constrained by many rules it would have no role in formulating. We would be an independent Britain, still dependent on Europe.

The immediate effect of a vote in favour of 'Brexit' could also be devastating in further ways. Prolonged uncertainty over the UK’s new relationship with the EU would discourage investment, particularly foreign direct investment given Britain’s status as the financial capital of the world and the effects of these fears are already being identified; for instance, the recent fall of the value of the pound.

Above all, one question remains: will Britons be enticed by the illusion of a sovereign and liberal Britain, or will they see reason in the idea that there will always be safety in numbers? One thing is certain however, If the UK separates from the European Union, the decline of the pound will be the least of their worries.

12 Ways A Stronger US Dollar Affects The Global Economy

During the last few years, the US dollar has grown in strength. Uncertainty about the world economy has led many investors and others to turn to the US dollar. Because the greenback is backed by what many consider the most stable tax base in the world, it is considered very safe. On top of that, the US economy is still the largest, and the greenback is still the de facto global currency. It’s hard to argue against the viability of the US dollar, and with all of the uncertainty right now, it’s not surprising that many turn to the greenback for a reliable investment.

However, a stronger US dollar has very real impacts. For decades, the dollar was weakening relative to other currencies. But now, the situation has changed.Even  if the change ends up being only temporary. here  are some of the ways a stronger US dollar affects the economies of the United States and Europe:

1. US Domestic Industries Struggle with Input Costs

For US companies with foreign workers in developing nations, a stronger dollar means input costs related to labor are smaller, since a stronger dollar can buy more of a weaker currency. That’s not the story in the United States, though. With a stronger dollar, it means that US domestic labor, paid for in US dollars, is more expensive. There isn’t a lot of flexibility for these types of companies to compete on price without seeing thinner margins. As ISM falls, there is potential for GDP growth to slow as well.

2. US Exporters Likely to See Losses

Earnings season once again reminds us that US companies exporting to other countries are likely to see problems related to a stronger US dollar. With the dollar stronger relative to other currencies, it means that exporters have to lower their prices in order to prevent buyers in other countries from turning to less-expensive alternatives. This impact on US company earnings can mean a lower stock market, as well as other economic consequences.

3. European Companies Can’t Raise Prices

The ECB has been trying to keep the eurozone economy on life support since the sovereign debt crisis. Recently, the ECB instigated a quantitative easing program to help stimulate the economy with the help of inflation. However, a stronger US dollar means that it’s going to be harder for European countries to raise prices, even with the help of a policy that encourages inflation. This means a difficult time for European companies and earnings, even if eurozone countries gain a little help in the realm of export.

4. Some European Exports Might be More Attractive

With a stronger dollar on tap, some European exports might be seen as more attractive. However, this may not happen to a significant  extent unless EUR/USD actually reaches parity – or the dollar strengthens to the point that it is worth more than the euro. If the dollar’s rally continues, the eurozone might get a little export help as more buyers turn to more moderately priced goods from a weaker currency. That could help the eurozone economy recover a bit, and be useful in the event that European companies can’t raise domestic prices.

5. Germany Likely to Benefit From Exports

The German economy is likely to be the biggest winner from increased exports. German exports will be cheaper and more attractive, thanks to a strong dollar. While this is likely to help the eurozone economy overall, the fact of the matter is that it is also likely to continue to widen the gap between German economy and the eurozone economies on the periphery.

6. US Consumers See Cheaper Fossil Fuels

During the last few years, as oil prices have risen and fuel has become more expensive in the United States, strides toward an economy less dependent on fossil fuels have been made. However, now that the greenback is gaining strength, oil, which is denominated in dollars, is lower in cost. With cheaper fossil fuels comes a shift away from the development of the sustainable energy economy, and that could impact the overall economy down the road if oil prices rise again.

7. Oil Doesn’t Fall as Much for Europeans

While oil prices are lower in Europe, because of a stronger dollar, the difference would not be so  great. The currency difference means that the drop wouldn’t allow European consumers to keep as much money in their pockets (for spending on other things) as US consumers have.

8. European Tourism Industry Grows

Eurozone countries are seeing increases in their economies thanks to tourism from the United States. US tourists are visiting eurozone countries because it’s cheaper for them to do so, with the value of the euro down relative to the value of the dollar. European economies might see a little extra boost in tourism, as long as the dollar remains strong.

9. Fewer Tourists to the United States

Of course, the flip side to a growth in tourism in eurozone economies is a decrease in tourism to the United States. A stronger dollar means it’s more expensive to visit the United States, something that might pinch the American hospitality industry.

10. Cuts to US Imports Could Keep Inflation in Check

The Federal Reserve has a target inflation rate of 2.0%.. Right now, the inflation rate is nowhere near that level, and it’s not likely to do so anytime soon., because the cut to import prices (a stronger dollar means that imports to the United States appear cheaper to consumers and others) will keep inflation in check. While the Fed has said it will look at a range of factors – including unemployment – before raising rates, there really isn’t much reason to raise rates as long as other factors keep inflation in check.

11. United Kingdom Acts as an Economic Bridge

Even countries not involved in the eurozone are feeling the impact of a strong US dollar. The United Kingdom has been a sort of “go between” since the dollar has strengthened. The pound has weakened relative to the dollar, but remains strong relative to the euro. Britons can add to the rise in tourism seen in the eurozone, and continue to act as an economic bridge between the United States and the eurozone.

12. Russia Sees Mixed Results

Another European country impacted by the strong US dollar, but that isn’t using the euro, is Russia. Russia sees mixed results from a strong dollar. On one hand, a strong dollar means better export numbers for the relatively weak ruble. On the other hand, though, the strong dollar is driving down oil prices, and that hits Russia in one of its biggest economic supports.

This article was written by Miranda Marquit, and provided by Andriy Moraru- editor at EarnForex. Check out EarnForex if you want to gain a better understanding of how currencies and economic indicators work together, and how you can benefit from global currency moves.

What Happened To Freddos Being 10p? (Part One).

The humble Freddo. Once the posterchild of the consumer chocolate boom, the first word in affordable sugary snacks, one of the only things you could actually buy with a 10p coin. Almost every British child has fond memories of the little sugary frog-shaped friend.
But fewer such memories are being gifted to the youth of today. No, the Freddo has been attacked viciously in recent years.

Since the introduction of the Freddo as we know it in 1994, the price has risen from a humble 10p to a more maverick 15p, to a dangerously inconvenient 17p (who carries around exactly 17p change) to its frankly outrageous current retail price of 20p. That's a 100% increase- a double in price!
There's been an outrage over this price change- a quick glance at the numerous facebook pages on the subject would confirm this.

But why has the price increased? One might say the greed of Cadbury itself- perhaps rightly so, however considering the presumably low profit margins on such a low-priced chocolate, it would be a questionable business decision to increase the price for no reason other than hope for more profits.

The answer in fact is one that you will have heard of- it affects all of us, and not just products like the Freddo- INFLATION.

Charting the scandalous Fredd-flation.

Inflation, simply put, is the increase in price of products or services.
A decade ago, 10p in your pocket could buy you a tasty little Freddo- but today, 10p cannot buy you the Freddo. So, because of inflation, your purchasing power, the possibilities of what your money can do, has decreased. You're worse off- you have to pay more than you did before, but you're not getting a larger, tastier Freddo; it's the same thing.

But inflation is not all that bad, especially if you're of the borrowing type. Let's have a theoretical (simplified) example. Say you buy a house in a period of low inflation. You pay with a fixed interest rate mortgage you've taken out from the bank. If a period of high inflation follows, your house price will rise (theoretically, as inflation=higher money supply=more money to spend, HOWEVER often other minor factors affect house price), and while you have the option available to profit from this increase (you can sell your house and make a profit), the total amount you have to pay the bank is still the pre-inflation price.
So, by the end of the mortgage payments, if inflation is still up, you've paid less than the market value of your home. So inflation has helped you!

But of course, inflation can lead to terrible consequences. Inflation is gas and energy prices has been reported to have fatal consequences on the poorer members of society (according to the Office for National Statistics, unaffordable energy bills contributed to 24,000 deaths in the UK in the winter of 2011), and that an inflationary spiral can occur- due to higher prices in the market, usually profits of companies will increase- meaning they can hire more staff- meaning more people will have income to buy products/services- meaning prices will continue to inflate as demand rises.

Inflation can also be caused by the government. You may have heard of the programme of quantitative easing- essentially money is pumped artificially into the economy to try to stimulate spending. One of the strong arguments against QE is that pumping more money into the economy causes inflation.
To understand this, think of money as a commodity- think gold. The more abundant gold there is, the less its value- and the less abundant it is, the more the value.

Money was easy to come by in Weimar Germany.
Too easy.

Of course a balance must be struck- but QE decreases the value of money, and historically some extreme QE-style programs have led to hyperinflation (think wheelbarrows of money in 1920s Germany), where money became so abundant due to printing of cash that it became worth more in paper than actual purchasing power.

So excess inflation does not sound too appetising- but neither does its opposite, deflation.
But take a nice rest. Have a nap, a little reflection and come back on Tuesday for part two, where we'll expand on deflation and more good stuff. 

SOURCES
24,000 'died because of cold homes' last winter http://www.dailymail.co.uk/news/article-2240716/24-000-died-cold-homes-winter-Fears-grow-figure-higher-year-spiralling-bills.html

investopedia.com

German Cars: What Makes Them Special?

If you were to ask someone on the street what car they would like to own, without doubt among the most popular brand selections would be BMW, Mercedes or Audi.

These three German manufacturers have taken the global car market by storm in recent decades, and are now the epitome of the well-built, high quality yet mass-marketable luxury car.

VIDEO: http://bit.ly/XHupq2

Of course all their cars are not necessarily of the best quality on the market- the likes of Aston Martin and Ferrari to name just two produce cars closest to perfection- however the crucial aspect to why BMW, Mercedes and Audi are more successful and relevant to this discussion is because they are open to the mass-market. The average middle-class family cannot afford a four-door £150,000 Aston Martin Rapide; though a £23,000 BMW 3-Series is within the reach of many, an achievement highlighted best by how it has consistently maintained a spot in the ten top-selling cars in Britain since 2004. 

The success of the German car industry can especially be noted when compared to that of Britain's. In 2011, Germany produced 5.9 million cars, the highest number in Europe- Britain a paltry 1.3 million- many of these not for British brands but for foreign ones such as Nissan and Honda. 
And the domination of the Germans extends much further- two typical 'British' car makers, Bentley and Mini, are in fact far from British; Bentley is owned by Volkswagen, Mini by BMW. 
There are in fact no longer ANY mass-market 'purely British' brands- Jaguar, Vauxhall, Land Rover, even Aston Martin, are all foreign-owned. 

Germany's success in the car industry must also be put into perspective- consider that less than a century ago the nation was facing huge economic turmoil, the sort that provides textbook examples of hyper-inflation: the wheelbarrows of cash, the 200 million mark loaves of bread, the extremely volatile prices, the lot. 
Post-war reparations had put Germany in a terrible state in the early 20th century- but looking at Germany now, with such economic might that makes it the most influential state in the EU, it is clear that the German system has produced fantastic results.

There are numerous reasons for the Germans' successful car market, but one key reason is the industrial mindset, the 'manufacturing culture' that is fostered by the Bavarians. 

Britain's manufacturing industry has had a rough last 30 years- in this period shrinking by two-thirds. Margaret Thatcher's time as PM during the 1980s to many killed the secondary industry in Britain. I'm sure you've seen the images of striking factory workers, unhappy at Thatcher's crushing of worker unions and the closures of numerous car factories throughout the nation. 

Meanwhile, Germany has only been growing since the Second World War- whereas British car factories became a battleground for a class war between management and labourers, German factories were tight-knit, harmonious and therefore far more efficient. 

The closer relationship between workers and management is part of Germany's attention to what is known as the 'social market economy'- a type of capitalism that does not co-ordinate market activity itself, but at the same time provides support for society- be it in the form of universal healthcare, unemployment insurance and, most relevant in this discussion, trade unions. German workers enjoy among the highest secondary sector wages in the world, and are provided good working conditions. In contrast to the system in the USA for example, where entry-level factory wages were halved from $28 to $14 an hour, the Germans' higher investment in the workers pays off, creating a more co-operative and committed environment, where workers develop loyalty to their company, an idea almost lost in the US labour economy. 
German workers are in fact the most loyal in Europe- the job market is far more stable, meaning companies can afford to invest more in long-term training, and crucially it means workers on the production line are experienced and efficient in their job.

Output is also helped by the power given to the workers on the German production line. Almost all German factories will have members of the regular workforce on the executive committee of the factory- as a result the workers are given a voice in the running of the factory, and have the power to suggest changes that may improve efficiency. 
To those who may believe this system can be abused to benefit the workers at the cost of the company, this is where the German system really makes a difference. Loyal German workers who are decently paid already are more likely to not abuse their power to push such agendas.
This system making workers a part of the running of their factories increases the workers' morale, making them feel more empowered as part of a democratic operation.

The education system is arguably the biggest factor in German industrial success. Whereas in Britain all youths are pushed through the same educational system until the age of 16, after which they are offered either further education or half-heartedly the option of vocational education- such as BTEC, or Apprenticeships.
These being relatively young programs, they are not well-established and are avoided by many students, partly as they are seen as for those intellectually inferior to the further educationers (certainly not always the case).

Meanwhile Germany offers more choice to specialise at an earlier point. After the age of 10 (or 12 in some areas) student can study at the Gymnasium to pursue higher education such as university, or can opt for the Realschule or Hauptschule, schools that will provide education in core subjects such as Maths but have a heavier focus on vocational education and practical work experience.

These extra years provides a head-start for German workers and has created skilled, respected workers, ready-made to enter the world of manufacturing at the age of 18. German factories have had no shortage of skilled workers- and as a result the production lines are efficient and smoother than most others in the world.

Germany have certainly set the benchmark for efficiency in the manufacturing industry. It must be noted that Japan are similarly capable in car production. 
Worker empowerment, the social market economy and an established, effective specialist education system have propelled Germany to the top of the global car industry- and while other countries may not be able to fully translate German practices into their own car industries, it is certain that they can learn lessons from it.

SOURCES (And recommended reads): 

How German cars beat British motors - and kept going bbc.co.uk/news/magazine-23406467 (BBC, 2013)

Mercedes Benz, BMW and Audi Seen as Top Three Car Manufacturers in Terms of Overall Brand Quality By Europeans, According to New Harris Interactive Survey prnewswire.co.uk/news-releases/mercedes-benz-bmw-and-audi-seen-as-top-three-car-manufacturers-in-terms-of-overall-brand-quality-by-europeans-according-to-new-harris-interactive-survey-155096425.html 

Why doesn't Britain make things any more? www.theguardian.com/business/2011/nov/16/why-britain-doesnt-make-things-manufacturing (The Guardian, 2011)

Manufacturing lessons from Germany

www.tradegood.com/en/insights/viewpoints/market-features/manufacturing-lessons-from-germany.html

German Lessons: DEVELOPING INDUSTRIAL POLICY IN THE UK www.tuc.org.uk/sites/default/files/tucfiles/germanlessonsedit.pdf

US carmakers cut pay as Australia's hourly rates soared www.theaustralian.com.au/national-affairs/us-carmakers-cut-pay-as-australias-hourly-rates-soared/story-fn59niix-1226779288772?nk=7680174eef8fa1a758fb359ff5cd292a (The Australian, 2013)

Consumer confidence drives record year www.smmt.co.uk/2004/01/consumer-confidence-drives-record-year/ (SMMT, 2004)

German workers 'most loyal in Europe' www.thelocal.de/20121014/45553 (The Local, 2012)

German School System www.howtogermany.com/pages/germanschools.html