The economic consequences of Brexit (Vol 2)
Discussion
skahigh said:
This is the bit I don't understand.
From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?
Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?
It's because we're not Target 2 and running a Ponzi bank system that the liabilities and assets of UK trade are so much safer for Germany and do not create a toxic and irreversible entry on the Bundesbank's balance sheet.From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?
Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?
I watched a very interesting interview on Bloomberg last night with a chap called Jay Hambro, he is head of investments for a major metals company.
The interview was to discuss Iron ore price changes and the market in the east/china in particular, but the interviewer got on to Brexit and how it was bad for the UK market, especially Automotive.
His response was enlightening for the interviewer to say the least.
He said that was nonsense, in fact Automotive in the UK is expanding rapidly, especially in the UK sourced supply chain. He said they had just purchased the last Aluminium smelters in the UK and the hydro-electric power plant nearby, plus all the local land. They were now in the process of ramping up the facility and are building a new factory to make Alloy Wheels on site. By the time UK has completed Brexit they will be supplying 1/4 of all the Alloy Wheels purchased by the OEM's on UK manufactured cars.
He also said they just purchased two UK steel furnaces and will be using those to process scrap steel, at the moment UK only processes 5% of its scrap steel, the rest goes abroad and is processed there, then bought back to the UK. They will be taking a lot of those exported scrap metals and processing in the UK and selling that steel in the UK.
The interview was to discuss Iron ore price changes and the market in the east/china in particular, but the interviewer got on to Brexit and how it was bad for the UK market, especially Automotive.
His response was enlightening for the interviewer to say the least.
He said that was nonsense, in fact Automotive in the UK is expanding rapidly, especially in the UK sourced supply chain. He said they had just purchased the last Aluminium smelters in the UK and the hydro-electric power plant nearby, plus all the local land. They were now in the process of ramping up the facility and are building a new factory to make Alloy Wheels on site. By the time UK has completed Brexit they will be supplying 1/4 of all the Alloy Wheels purchased by the OEM's on UK manufactured cars.
He also said they just purchased two UK steel furnaces and will be using those to process scrap steel, at the moment UK only processes 5% of its scrap steel, the rest goes abroad and is processed there, then bought back to the UK. They will be taking a lot of those exported scrap metals and processing in the UK and selling that steel in the UK.
Digga said:
skahigh said:
This is the bit I don't understand.
From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?
Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?
It's because we're not Target 2 and running a Ponzi bank system that the liabilities and assets of UK trade are so much safer for Germany and do not create a toxic and irreversible entry on the Bundesbank's balance sheet.From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?
Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?
If a money transfer is made between the balance sheets of two commercial banks, why does that transfer arrive on the balance sheets of the central banks? Because the central bank underwrites the debt? Because that is how TARGET2 is designed to work?
Are you saying there is no build up of debt between the central banks of Germany and the UK because the trades between our countries are actually physically settled? Or because the asset/liability is held with the commercial banks themselves?
Sorry, I'm not trying to be difficult, I just don't feel this has been explained very well.
skahigh said:
Digga said:
skahigh said:
This is the bit I don't understand.
From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?
Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?
It's because we're not Target 2 and running a Ponzi bank system that the liabilities and assets of UK trade are so much safer for Germany and do not create a toxic and irreversible entry on the Bundesbank's balance sheet.From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?
Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?
If a money transfer is made between the balance sheets of two commercial banks, why does that transfer arrive on the balance sheets of the central banks? Because the central bank underwrites the debt? Because that is how TARGET2 is designed to work?
Are you saying there is no build up of debt between the central banks of Germany and the UK because the trades between our countries are actually physically settled? Or because the asset/liability is held with the commercial banks themselves?
Sorry, I'm not trying to be difficult, I just don't feel this has been explained very well.
"Us" buying/transferring money to EZ countries involves an actual transfer, equivalent if you like to rocking up with a suitcase of cash.
Inter-EZ transfers (ie TARGET2) on the other hand are an IOU. They are equivalent to a tramp giving you a scrap of paper with "IOU £1 Million" on. In theory you have £1 million but if you ever tried to actually get that money you'd realise there is no money.
The real issue there is that if the country who owes the money drops out of the EU as its not proper "debt", they wouldn't still owe it and hence the remaining EZ countries would have to split the debt between themselves.
Guardian (usual caveats apply) reporting that UK owned airlines are being told by the EU that after Brexit they will have to move their headquarters to the EU and sell off their shares to EU nationals if they want to keep operating routes within continental Europe(sic).
https://www.theguardian.com/politics/2017/mar/22/u...
https://www.theguardian.com/politics/2017/mar/22/u...
Fastdruid said:
As I understand it (and more knowledgeable people feel free to shoot me down here).
"Us" buying/transferring money to EZ countries involves an actual transfer, equivalent if you like to rocking up with a suitcase of cash.
Inter-EZ transfers (ie TARGET2) on the other hand are an IOU. They are equivalent to a tramp giving you a scrap of paper with "IOU £1 Million" on. In theory you have £1 million but if you ever tried to actually get that money you'd realise there is no money.
The real issue there is that if the country who owes the money drops out of the EU as its not proper "debt", they wouldn't still owe it and hence the remaining EZ countries would have to split the debt between themselves.
Thanks, I thought that might be the case but, it wasn't clearly explained in the article."Us" buying/transferring money to EZ countries involves an actual transfer, equivalent if you like to rocking up with a suitcase of cash.
Inter-EZ transfers (ie TARGET2) on the other hand are an IOU. They are equivalent to a tramp giving you a scrap of paper with "IOU £1 Million" on. In theory you have £1 million but if you ever tried to actually get that money you'd realise there is no money.
The real issue there is that if the country who owes the money drops out of the EU as its not proper "debt", they wouldn't still owe it and hence the remaining EZ countries would have to split the debt between themselves.
I'm still not sure why the asset/liabilities of commercial banks end up on the balance sheets of the central banks under this system though.
This seems to suggest that in the Euro zone commercial banks have to make transactions via their central bank which, would explain it and fill in the bit I was missing.
I assume UK commercial banks settle their transactions directly rather than via the Bank of England?
In which case, when a Euro zone commercial bank makes a transaction with a UK commercial bank, do they still go via their central bank or do they go direct?
FiF said:
Guardian (usual caveats apply) reporting that UK owned airlines are being told by the EU that after Brexit they will have to move their headquarters to the EU and sell off their shares to EU nationals if they want to keep operating routes within continental Europe(sic).
https://www.theguardian.com/politics/2017/mar/22/u...
It is really hard to workout at this stage what is grandstanding and what is really a genuine problem. There are going to be some very real issues but equally there is an awful lot of scaremongering going on. https://www.theguardian.com/politics/2017/mar/22/u...
On the face of it I find it hard to believe that is genuine. After all what it appears to be saying is that only EU based carriers can enter EU airspace which is manifestly b
ks. I may have the wrong end of the stick however but given that it's The Guardian which are as anti-brexit as they come I would take anything they say with a very large pinch of salt.
Fastdruid said:
It is really hard to workout at this stage what is grandstanding and what is really a genuine problem. There are going to be some very real issues but equally there is an awful lot of scaremongering going on.
On the face of it I find it hard to believe that is genuine. After all what it appears to be saying is that only EU based carriers can enter EU airspace which is manifestly bks. I may have the wrong end of the stick however but given that it's The Guardian which are as anti-brexit as they come I would take anything they say with a very large pinch of salt.
I think you have the wrong end of the stick. They are saying that operating routes that run point to point entirely within the EU can only be done by EU based carriers.On the face of it I find it hard to believe that is genuine. After all what it appears to be saying is that only EU based carriers can enter EU airspace which is manifestly b
ks. I may have the wrong end of the stick however but given that it's The Guardian which are as anti-brexit as they come I would take anything they say with a very large pinch of salt.EasyJet will still be able to fly London to Paris after Brexit but, not Paris to Milan.
On the face of it it seems quite cut and dried (rules are rules).
Fastdruid said:
It is really hard to workout at this stage what is grandstanding and what is really a genuine problem. There are going to be some very real issues but equally there is an awful lot of scaremongering going on.
On the face of it I find it hard to believe that is genuine. After all what it appears to be saying is that only EU based carriers can enter EU airspace which is manifestly bks. I may have the wrong end of the stick however but given that it's The Guardian which are as anti-brexit as they come I would take anything they say with a very large pinch of salt.
It has elements of truth. The EU operates an open market so a UK registered airline can fly between two third party countries. If we are no longer party to this then it would mean the likes of Easyjet would need to operate their flights which do not have the UK at either end under a EU banner. Likewise, Ryanair would probably need to register a UK based airline to operate out of Stansted to non-RoI destinations rather than use the RoI registered planes they do at the moment.On the face of it I find it hard to believe that is genuine. After all what it appears to be saying is that only EU based carriers can enter EU airspace which is manifestly b
ks. I may have the wrong end of the stick however but given that it's The Guardian which are as anti-brexit as they come I would take anything they say with a very large pinch of salt.There are already examples of Airlines doing this. Easyjet already (and have had for ages) have Swiss registered aircraft and a Swiss operating company, Norwegian have an Irish based company and use Irish & UK registered aircraft on some routes.
On top of that the EU have agreements on various "open skies" with non-EU countries such as Morocco which is why Easyjet can fly a UK owned and registered plane between Paris and Rabat for example.
skahigh said:
I think you have the wrong end of the stick. They are saying that operating routes that run point to point entirely within the EU can only be done by EU based carriers.
EasyJet will still be able to fly London to Paris after Brexit but, not Paris to Milan.
On the face of it it seems quite cut and dried (rules are rules).
This is correct. However, the EU have extended this agreement beyond the EU to non-EU countries so it depends on whether a deal can be done for the UK to remain part of it.EasyJet will still be able to fly London to Paris after Brexit but, not Paris to Milan.
On the face of it it seems quite cut and dried (rules are rules).
Like so many things it depends on the negotiations but if we leave with no deal whatsoever this will be the case.
Fastdruid said:
FiF said:
Guardian (usual caveats apply) reporting that UK owned airlines are being told by the EU that after Brexit they will have to move their headquarters to the EU and sell off their shares to EU nationals if they want to keep operating routes within continental Europe(sic).
https://www.theguardian.com/politics/2017/mar/22/u...
It is really hard to workout at this stage what is grandstanding and what is really a genuine problem. There are going to be some very real issues but equally there is an awful lot of scaremongering going on. https://www.theguardian.com/politics/2017/mar/22/u...
On the face of it I find it hard to believe that is genuine. After all what it appears to be saying is that only EU based carriers can enter EU airspace which is manifestly b
ks. I may have the wrong end of the stick however but given that it's The Guardian which are as anti-brexit as they come I would take anything they say with a very large pinch of salt.ks.Tbh it's not helped by David Davis' comments but this issue has been flagged up before and ignored.
On the other hand I'm not sure the actual impact in real life. For example I did a search for one UK carrier for flights from Paris to possible destinations, all the ones that started and finished in rEU airports were all actually by partner airlines already owned and based in rEU.
Sway said:
///ajd said:
If some Mini production migrates to the EU, it is quite possible it will be genuinely due to brexit.
That will be st result.
You can't make excuses or roll such news in glitter. It'll still be a turd-like outcome.
Want to stop that happening?
I'll tell you what, I'll make a similar wager that I did another poster who refused until I shifted the odds in his favour - £500 that the Mini plant in Oxford remains at full capacity or expands over the next three years, barring major non-Brexit related financial crisis (such as the Euro sThat will be s
t result.You can't make excuses or roll such news in glitter. It'll still be a turd-like outcome.
Want to stop that happening?
tting a brick or Trump fking up the dollar). If they lose staff, or drop production, you name the charity of choice for my deposit. If I win, the RNLI gets £500 of your cash.
Up for it? Or like the other poster, is the chance of your doomaggedon less than fifty/fifty?
i like your style, encouraging people to have skin in the game by showing financial commitment to back up their stated position tends to sort the wheat from the chaff very quickly. it would appear ajd and jawknee are chaff rather than wheat.
///ajd said:
JawKnee said:
Tuna said:
///ajd said:
obviously didn't get the memo about turning into fishermen.
http://www.express.co.uk/news/world/782075/brexit-...
(ultra friendly media link, guardian not required)
So an American company that trades globally says that they have a contingency plan to increase headcount in Europe so that they can serve European clients with minimum of fuss after Brexit.http://www.express.co.uk/news/world/782075/brexit-...
(ultra friendly media link, guardian not required)
What's the news? After Brexit, I assume a number of UK companies will also be looking at more head count in Europe to increase trade. That's what trading globally looks like.
I'm not sure what you thought that item proved.
We've been stitched up.
Perhaps it is just a front or they daren't allow themselves to believe that their vote could have cost many many jobs. I suspect many didn't think the risks were real - indeed this is still a common mantra that it was all scaremongering. It wasn't though was it. Banks actively moving some operations can only be seen as bad news for the UK. Literally pissing away our GDP. That 1% the EU costs us already looks trivial.
And the idea that factories like the Mini plant will start making lots of different models just for the UK. Do they not teach economies of scale at school anymore? Still it is what Minford promised you.
Where were you, when membership of the EU reduced the UK`s aluminium industry from 400 thousand tons per annum to 43 thousand tons? Where were you when membership of the EU reduced the UK`s cement industry from a capacity of 20 million tons, down to 12 million tons a year?
Where were you when the EU transferred thousands of UK Ford jobs to other EU states, and used EU money from EU coffers of which the UK is the second largest net contributor to pay for that transfer? Thanks to the EU, our own money is being used to take jobs out of the UK and into the EU.
Where were you when the EU`s seizure of 80% of the fish stocks in UK territorial waters (without any compensation from the EU) decimated the UK fishing industry, which lead to the economic and social decline of many UK coastal communities? If anyone is a traitor to the UK it is someone who voted for the UK to remain in the corrupt, self serving, money grabbing, failing, dishonest EU.
Sway said:
///ajd said:
If some Mini production migrates to the EU, it is quite possible it will be genuinely due to brexit.
That will be st result.
You can't make excuses or roll such news in glitter. It'll still be a turd-like outcome.
Want to stop that happening?
I'll tell you what, I'll make a similar wager that I did another poster who refused until I shifted the odds in his favour - £500 that the Mini plant in Oxford remains at full capacity or expands over the next three years, barring major non-Brexit related financial crisis (such as the Euro sThat will be s
t result.You can't make excuses or roll such news in glitter. It'll still be a turd-like outcome.
Want to stop that happening?
tting a brick or Trump fking up the dollar). If they lose staff, or drop production, you name the charity of choice for my deposit. If I win, the RNLI gets £500 of your cash.
Up for it? Or like the other poster, is the chance of your doomaggedon less than fifty/fifty?
It's a bet I *want* to lose (remainer, now cheering on the breixiteers), but an interesting exercise. If I win, well at least a charity would benefit - I'd go for the MS society.
paul789 said:
Sway said:
///ajd said:
If some Mini production migrates to the EU, it is quite possible it will be genuinely due to brexit.
That will be st result.
You can't make excuses or roll such news in glitter. It'll still be a turd-like outcome.
Want to stop that happening?
I'll tell you what, I'll make a similar wager that I did another poster who refused until I shifted the odds in his favour - £500 that the Mini plant in Oxford remains at full capacity or expands over the next three years, barring major non-Brexit related financial crisis (such as the Euro sThat will be s
t result.You can't make excuses or roll such news in glitter. It'll still be a turd-like outcome.
Want to stop that happening?
tting a brick or Trump fking up the dollar). If they lose staff, or drop production, you name the charity of choice for my deposit. If I win, the RNLI gets £500 of your cash.
Up for it? Or like the other poster, is the chance of your doomaggedon less than fifty/fifty?
It's a bet I *want* to lose (remainer, now cheering on the breixiteers), but an interesting exercise. If I win, well at least a charity would benefit - I'd go for the MS society.
London424 said:
paul789 said:
Sway said:
///ajd said:
If some Mini production migrates to the EU, it is quite possible it will be genuinely due to brexit.
That will be st result.
You can't make excuses or roll such news in glitter. It'll still be a turd-like outcome.
Want to stop that happening?
I'll tell you what, I'll make a similar wager that I did another poster who refused until I shifted the odds in his favour - £500 that the Mini plant in Oxford remains at full capacity or expands over the next three years, barring major non-Brexit related financial crisis (such as the Euro sThat will be s
t result.You can't make excuses or roll such news in glitter. It'll still be a turd-like outcome.
Want to stop that happening?
tting a brick or Trump fking up the dollar). If they lose staff, or drop production, you name the charity of choice for my deposit. If I win, the RNLI gets £500 of your cash.
Up for it? Or like the other poster, is the chance of your doomaggedon less than fifty/fifty?
It's a bet I *want* to lose (remainer, now cheering on the breixiteers), but an interesting exercise. If I win, well at least a charity would benefit - I'd go for the MS society.
skahigh said:
Digga said:
skahigh said:
This is the bit I don't understand.
From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?
Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?
It's because we're not Target 2 and running a Ponzi bank system that the liabilities and assets of UK trade are so much safer for Germany and do not create a toxic and irreversible entry on the Bundesbank's balance sheet.From what I can tell Britain doesn't use the TARGET2 system (because it's not in the Euro?) so, how is the settlement made? Surely there is still an asset created on the German banks books and a liability on the UK banks books?
Why is Britain's trade more important to Germany than the Euro zone nations? Simply because of the relative strength and vulnerability of our economies?
If a money transfer is made between the balance sheets of two commercial banks, why does that transfer arrive on the balance sheets of the central banks? Because the central bank underwrites the debt? Because that is how TARGET2 is designed to work?
Are you saying there is no build up of debt between the central banks of Germany and the UK because the trades between our countries are actually physically settled? Or because the asset/liability is held with the commercial banks themselves?
Sorry, I'm not trying to be difficult, I just don't feel this has been explained very well.
Let’s deal with payments and target 2.
Most people are unaware all payments between banks settle via the relevant CB. So in the UK if you bank with Barclays and I with Nat West and you pay me £10 via your web account. The effect is actually that Barclays Bank account with the BOE will be overdrawn by £10 and Nat West account with the BOE will have a balance of £10. For ease the payments are not individually process but batched but the effect is the same.
This process, called Central Bank Money, is essential to avoid systemic risk.
Bank can run overdrafts with the CB, these must be collateralised, but are normally cleared each day by the bank borrowing or lending money .
The same happens in the EU. If an Italian buys something from a German then The Italians bank will create an overdraft with the Italian CB and the Germans bank will create a deposit in the German CB. These are all linked by the target 2 system. However, the overdraft and deposit are short term and will be cleared that day by the banks other borrowing and lending.
So no it’s not a target 2 problem.
However, there is a problem. In addition to providing payment infrastructure the CB’s act as lender of last resort (policy is set the ECB) to the banking systems. With many banks with weak balance sheet the CB’s are providing large collateralised loans to local banks. It unclear if these banks will ever be strong enough to borrow commercially and repay the CB.
Hope that helps.
The reasons may be mistaken but the blogger is correct German does not want any economic slowdown.
I have said several times the UK brings 2 things to the brexit negotiations:
1. Trade deficit with German.
2. Money.
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