By Christian Takushi MA UZH, Independent Macro Economist & Geopolitical Strategist. 24 July 2019  (release to public was delayed)

As I write this Mr. Boris Johnson is assuming the role of British Prime Minister. This at a critical time for his nation and Europe.

From what I gather as a foreign analyst and observer, the muted welcome in London circles is being contrasted by a slightly more optimistic reception across the union. Despite the overall skepticism and hostility that many thought leaders in London are giving to the new Prime Minister, many Britons that voted “Leave” are relieved that finally a Brexiteer is leading the UK government.

Maybe it is fair to say that there is a muted disbelief in London & Edinburgh, and cautious optimism in many small villages and market towns across the rest of Britain. And that not necessarily, because of the way Britons voted on BREXIT, but rather because a more unconventional leader may be more able to break through the monumental gridlocks facing this nation.

Britain is a remarkable nation

Despite all the mock I have heard about the UK over the past three years and the divisions within Britain, I am most impressed about the civility with which the leaders of this great nation are going about this difficult transition and uncertain future. Both Mr. Boris Johnson and Mrs. Theresa May have payed respect to one another. And just as I write, the British Parliament is paying tribute to Mrs. Theresa May for her premiership and her 33 years of outstanding public service. That is how it should be.

It is highly commendable that many among her rivals are acknowledging Mrs. May’s great sense of duty.  Mr. Jacob Rees-Mogg, a bitter rival of the outgoing Prime Minister, delivered today the best example. He “commended Mrs. May for being always so remarkably courteous with her rivals, although they were so annoying to her”. Even as Mr. Corbyn and Mrs. May traded tough words of criticism today, they allowed for laughter and humour to reverberate throughout the chamber. That ability to laugh about one’s self and to conduct bitter arguments with some décor is something that sets British democracy apart from many other democracies in the world – even within Europe for that matter.

Britain has a long history of stark leadership changes – i.e. handovers where the new prime minister was utterly different from his/her successor. It happened with Mr. Churchill and with Mrs. Thatcher.  And it has worked repeatedly.

A momentous shift: same party, new approach

Mrs. May tried to reach a BREXIT deal with the European Union using a very polite, forthcoming and transparent – and may I say predictable – approach. Too predictable as it turned out to be. Such approaches work well among equals, not when one party threatens the other. The EU threatened the UK not out of arrogance, as so many say, but out of fear.

Mixing duty and vision – As an honourable public servant and committed Remain-campaigner Mrs. May tried to deliver on Brexit, but with a deal that would keep the UK closely connected to the EU. Mrs. May was the EU’s best option. I believe the EU has miscalculated – it drew hard lines, because it had to be particularly hard on Britain in order to “punish” it for wanting to exit the EU. Out or fear, the EU has tried to deter (scare) other EU members from following the UK.

Well, as of today the UK is changing its approach, and I suspect even Mrs. May acknowledges Mr. Johnson is more suited for that unorthodox role.

I expect Prime Minister Johnson to aggressively prepare the UK for a “clear cut” exit from the EU.  In the coming months I suspect many observers will be surprised at the sharp contrast to the last government. Many in Europe are upset about Mr. Johnson assuming the British premiership, but –  believe based on my independent analysis – it was the hard positions of the EU and the way the EU humiliated Prime Minister May that finally led the Conservative Party to change approach.

Parliament still struggles to accept the popular vote

Although the UK parliament has set up obstacles to frustrate Britain’s exit from the EU, it is my assessment that they will not fully succeed to avert an eventual exit. For a simple reason: The British people deliberated the issue for years and they voted on the issue. The parliament never liked the outcome of the referendum, and it has delayed and muddled the process. Should the parliament really dare to avert the exit, they would be aligning themselves too much with the EU. For many parliament members a kind of political suicide in their respective constituencies that voted “Leave”.

Financial media has celebrated the lawyers’ masterly prepared obstruction of Johnson, and said that a No-Deal is unlikely now. Despite all this, I still see a rather Hard Brexit or a No Brexit as the most likely outcome at the end of this long process – even if a snap election is needed. This has been my assessment since early 2016. Why? For two reasons mostly. Firstly, many Britons – regardless whether they voted Remain or Leave – do not appreciate that their parliament has obstructed BREXIT since June 2016. Secondly, the behaviour of EU leaders has awakened memories of the Battle of Britain – There are indeed some parallels between 2019 and 1939 and “We Can Do” resembles the rallying cry of Mr. Churchill during WW2. I have noticed Mr. Johnson tapping on Mr. Churchill’s approach.

The point is that Britain won’t leave under the conditions that the EU believed it could box Britain into. More importantly, the EU will be gripped by fear that Britain may thrive as an independent nation. And other nations could follow.

Remain-Campaigners can bet on the new EU commission president though. Mrs. Ursula von der Leyen, she is a more empathetic person than her predecessor. She would have been Mrs. May’s ideal counterpart.

Looking ahead – Mr. Johnson may try to “blitz” Britain out of the EU

True to her approach, Mrs. May did negotiate within a framework set for the most part by Brussels. She would fly to Brussels when “summoned” by Mr. Juncker (just like Mr. Cameron did before her), where she charted the course to follow together with the European Commission. Those days are over.

Prime Minister Johnson is likely to do the only thing that probably works with “Fortress” EU. And given the short three months he has left to achieve that, he may opt to do it at Blitz speed.

Prime Minister Johnson is going to aggressively prepare the United Kingdom to exit the European Union without an exit deal by 31 October 2019. Once he has set Britain on “blitz exit” (BLEXIT) course, I expect Mr. Johnson to signal to Brussels a stronger openness for dialogue. Thus, opening the door for a potential compromise in the month of October. This means setting the course for a No Deal Brexit with vigour, but opening the door for a negotiated Exit.

The “blitz” whirlwind could shock Berlin, Paris and Brussels .. as the UK embraces self-confidence, no small amount of suffering and prepares to leave.

By September, I believe Germany will realise that it will miss Britain a lot. Germany’s position in Europe will be weakened by the departure of Britain. Thus, I expect a certain moderation from Berlin, just what London may need to achieve a late October compromise. It gets better – Mr. Johnson could take advantage of the weakening of Mrs. Merkel’s coalition government.

But there could be also moderation from Brussels: unlike her predecessors, Mrs. von der Leyen knows how disastrous it is for the EU to lose Britain as Military Power. She was for many years Germany’s defence minister and is well aware of the sad condition of Europe’s military after almost two decades of dismantling. Since 2014 I have pointed European though leaders to the fact that Europe needs Britain for her security. Security is essential, and at times everything. Without security, no economic prosperity. Thus, security is the topic Mr. Johnson could focus on with the new EU Chief – Britain could offer to protect a highly vulnerable EU in order to get concessions elsewhere.

If Britain leaves without a deal, there will be suffering on both sides. But I expect that there will be more hope on the British side of the channel as years pass by.

Britain faces a two-year shock, to thrive thereafter – EU to shift left, into big deficits

Should the EU remain hard, Britain is headed for a rough exit. But I expect the shock or downward correction to stabilise within two years. Five years after Brexit I expect the British economy to be thriving thanks to massive deregulation, tax cuts & investments.

Without the moderating role of Britain, the decline of the European Union could speed up. Germany may have championed fiscal discipline, but Britain championed free markets. The over-protected and over-regulated EU will see the state expanding its role dramatically. Brexit will shift the EU to the liberal left, accelerate deficit spending and the role of the state across Western Europe. By 2024 over 70% of households in the EU shall be receiving their incomes from the state or thanks to state regulation of some kind. The government is used to create jobs in the EU. Longer term the EU and China are likely to increasingly converge economically and geopolitically.

The Rise of the Far Right and of populist parties will be contained, especially in Western Europe. The committed ‘protest voters’ on the right are likely to be limited to a hard 30% ceiling in key countries (most importantly in Germany). Economics go hand in hand with geopolitics: those whose jobs or incomes depend on the state won’t really vote to take down that state.

I know many conservatives dislike my long term outlook for Western Europe, but I am here to analyse, not to promote an agenda (desired outcome). The latter has sadly become too popular among intellectuals and even economists.

Crises will converge over the EU though, and that is likely to usher the fading or the collapse of the current EU structures and the transition towards a new European State. Thus, ultimately the European Integration Process will resume and accelerate.

Johnson’s approach: taking a cue from Churchill?

What few in continental Europe know is that Mr. Churchill was derided by the London elites even before WW2. Mr. Churchill wanted to safeguard Britain’s independence and was also highly skeptical of any reassurances by Continental powers.

The successful quest for liberty by Britain during WW2 was an embarrassing chapter for the London intellectual elites. They believed it was impossible for Britain to survive against a hostile European continent unified under German leadership.

I expect Mr. Johnson to use the following three-pronged approach

1. To emulate Mr. Churchill in energising the nation to believe in herself despite unsurmountable challenges and threats from Continental Europe
2. To aim at convincing the people rather than the parliament directly (he is not familiar with parliament tactics and he will be dragged in delaying procedures anyways), letting the local constituencies weigh on key parliament members to tip the balance. He is likely to delegate parliament strategy to someone else. He is good at that. He will also try to sway some liberals – he is not a typical conservative, which he proved as major of London
3. To try to rally support from the wider Anglo-Saxon world, the Commonwealth, the Americas and Japan

Thus, I disagree with what many experts are saying today – that he will have to put his emphasis on the parliament. I don’t see Mr. Johnson trying to be someone he is not (a parliament-majority builder), he will rather try to do what he is best at.

The results of the latest European elections in which the BREXIT party arose as the winner and a combined front of BREXIT-Conservatives would command a majority, has obviously given Mr. Johnson the boldness to go for maximum aggressiveness. If PM Johnson fails to win over or overcome parliament to deliver Brexit, he will not hesitate to call for a snap general election. Only then he will cooperate with Mr. Farage. He may not be a parliamentary politician, but he does know about political tactics.

Things are never the same, but history could be a reference

It was not utterly different some 80 years ago before the Battle of Britain. Most of the London elite derided Mr. Churchill and wanted a “compromise deal” with Germany. British and German intellectuals wanted to preserve business and peace between the two nations, and they saw in Churchill a disruptive extremist that would guarantee confrontation between Britain and Germany. But right from the beginning Mr. Churchill saw through the weakness of Continental powers and the real intentions of Berlin.

80 years on, there are many Brexit leaders and millions of Britons that believe Berlin-Brussels cannot be fully trusted still. The insensitive comments and threats by European leaders haven’t helped either. Not enough, the obstruction tactics of the British parliament over the past three years has increased the concerns among moderate voters about the influence the EU exercises over whole groups in the British parliament. I find the British people to be very mindful of history and especially the events that led to the Battle of Britain. I say this, because unfortunately the many threats aired by EU leaders since 2014 against Britain (if you dare to leave, you’ll regret it) have awakened old memories.

In the drama that followed the onset of the German Blitzkrieg Mr. Churchill was able to inspire his countrymen to believe in themselves and to venture into the unknown. But even Churchill would have not succeeded without the king’s support. It was King George who gave that solemn radio speech on that fateful evening of 3 Sep 1939 that united the nation – calling all his subjects to “expect suffering and commend their cause unto God”. In that context, I suspect that Mr. Boris Johnson may probably be glad that Queen Elizabeth II is on the throne. She witnessed the speech of her father, King George.

Regardless of how BREXIT finally pans out, European leaders and citizens should reflect with humility on the following. Why would a great nation choose to step into the unknown? What is the certainty the EU offers to its members? It can hardly be a great economic prosperity, is it peace? Peace in Europe has been guaranteed by the United States of America. The EU has no army that could provide credible deterrence. It is my hope that Europe will try to address the issues that led the British people to reject the EU. 

I often come to the conclusion that many Continental Europeans do not really understand the British people (Anglo-Saxons in general). Again and again they seem to underestimate their spirit, robustness and ability to withstand or overcome.

For my part, as an independent economist and strategist, I see a bright future for an independent United Kingdom outside of the EU. But it may demand adjustment and sacrifice from many Britons. In the face of adversity they have proven themselves in the past. What many scholars and experts see as a sure disaster may test this generation and prove to be their finest hour.

For concrete investment outcomes of this analysis or to subscribe to his newsletter, kindly write to c.takushi@bluewin.ch

By Christian Takushi MA UZH, Independent Macro Economist & Geopolitical Strategist. 24 July 2019  – Switzerland (release to public was delayed)

Disclaimer: None of our comments should be interpreted or construed as an investment recommendation

A distinct broad approach to geopolitical research

(a) All nations & groups advance their geostrategic interests with all the means at their disposal

(b) A balance between Western linear-logical and Oriental circular-historical-religious thinking is crucial given the rise of Oriental powers

(c) As a geopolitical analyst with an economic mindset Takushi does research with little regard for political ideology and conspiracy theories

(d) Independent time series data aggregation & propriety risk models

(e) He only writes when his analysis deviates from Consensus