By David Hargreaves
One of the inherently frustrating things about being a tiny country like New Zealand is that you can get your house in reasonable order, the economy's going okay, and then something big happens overseas that mucks it all up.
I confess, I didn't expect to ever write a 'Brexit' column. I simply never saw it as likely that Britain might actually, after all, when push came to shove, decide to leave Europe.
Then again, I didn't expect we would still be talking about Donald Trump in 2016 and, as a lifelong football fan, I never ever expected the Leicester City team to win the English Premiership. NEVER.
And for those with no understanding or particular interest in English football, can I just say that the likelihood of Leicester becoming the best team in England (which of course HAS already happened) would have been rated by most people as much less of a possibility than either the Donald getting the keys to The Whitehouse or Britain jumping off into its row boat and paddling away from the rest of Europe.
It's a funny old world at the moment.
We should find out sometime during next Friday (24th) evening our time if Britain has decided to make the great leap into the unknown. If it does then it's something of a leap into the unknown for all of us.
It seems to me that economists et al have not really seriously considered, till now, the possibility that Brexit might really happen. And it might not. But the chances of it actually happening are now quite clearly the strongest they've been.
What would it mean to us then?
Well, that's the problem. Nobody really knows. And when 'the markets' don't know what is going to happen, then they tend to regress in age and temperament. Toys exit the pram at a great rate of knots. Reports on the markets become exercises in using the word 'volatility'. Markets do not like 'uncertainty'.
This all comes at a pretty interesting time for New Zealand, with our housing market hot, migration levels hot, and the economy simmering quite well - though pumped up a fair bit by the migration. And then there's the rampant Kiwi dollar, continuing to pile on the pressure for exporters and making sure the likes of the dairy farmers are doing it even tougher than they would have been.
One of the most likely outcomes of a Brexit vote would be to knock the stuffing out of the Kiwi dollar. Usually when global markets throw a tantrum there is a 'flight to safety' of funds. Yes, essentially people stomp their feet, grab their money, and take it home, which means their home country.
Now, you might imagine that our beleaguered Reserve Bank wouldn't mind such an outcome, but you really should be careful what you wish for. A Brexit vote is definitely the 'nuclear option' when it comes to trying to get the Kiwi dollar down. I can still recall sitting in front of my computer screen during the darkest moments of the 2008 Global Financial Crisis watching in terrified fascination as the New Zealand dollar lost cents in value in minutes against the American currency. Let the volatility genie out of the bottle and anything can happen.
Look, it might not happen like that this time around. There's some evidence in recent times, notably during the period of sharp market volatility globally earlier this year, of the Kiwi dollar actually retaining some favoured investment status in the face of uncertainty. But we don't know until confronted by the reality of Britons getting into that rowboat. That's the problem. There's so much we don't know about what might come out of a Brexit.
The currency of course would not be the only victim of global volatility. It could be reasonably expected our sharemarket would get thrown around and interest swap rates may likely go up as well.
If any or all of these things happen then all bets are potentially off in terms of the immediate condition of our economy and yes, indeed, things like the housing market. It would really depend on when some sort of certainty around just what will happen to Britain is settled upon. But that could be a little while.
So, this really is the great unknown factor that little old New Zealand is facing in the next week - though we are not alone in that of course.
If we assume, as most economists here still seem to be, that Britain will vote to stay in Europe, then come Monday June 27 we'll be looking at (very probably) a still rising Kiwi dollar, still rising houses, and an economy still on a firm footing. Then the problem becomes what to do about the dollar and will the US Federal Reserve come to our Reserve Bank's rescue by hiking American interest rates at the end of next month?
However, if Britain goes all Leicester City on us, then all bets could yet be off. Then it would be time to be reminded yet again what a small country we are.
52 Comments
I say, why so sad faced? If Brexit does happen then surely lots of trade opportunities will open up for New Zealand as the UK seeks to slowly re-establish it's own free trade zone. They have the institutional strength and history to do so, most foreign exchange transactions go through London already. Just because the place was a basket case forced to bend the knee to the American dictate to join the EU, doesn't mean it will always be.
New Zealand's current prosperity is more than a little false, being based on massive inflows of foreign cash into real estate speculation. Record numbers of cranes in Auckland mean we are following the path taken by Greece and Spain in finding a home for other people's money. It's all party, party, party while the money keeps flowing in, but earning a living from producing food starts to look a lot less boring and old fashioned when the money inflow stops.
New Zealand's economic growth driven almost exclusively by rising population
www.stuff.co.nz/business/81128451/strong-construction-offsets-weak-prim…
Given the extreme scare campaign that is being run on a Brexit, I think it is safe to assume that Britain will forego sovereignty, rule of law and democracy and continue to submit to the regime of a few unelected apparatchiks on astronomical salaries in European Salafist HQ, previously known as Brussels. House prices will fall, jobs vanish, taxes rise and health care be cut to name a few of the threats hurled at the poor old poms. I am sure they will fall for the bluff. If not, then the system may resort to manipulation as has apparently been in the Austrian presidential election which is nearly sure to be annulled due to massive irregularities.
If the unthinkable was to happen, it would open immense opportunity to the Western world as a whole, including NZ. A Brexit would prove that we all have alternatives, that we are not powerless and without voice in the face of today's quasi-dictatorial rule of governments, central banks and multinational bodies accountable to international speculants and not the people, communities and economies they are supposed to serve.
It does seem to be about the proper role of government in society, doesn't it? The French central state bureaucratic view versus the more flexible and traditional Anglo Saxon / Viking view which places equal emphasis on the individual. The Brexit vote has more than a passing resemblance to the Glorious Revolution when the present system of parliamentary democracy was created (hence Marlborough and Blenheim as place names here).
http://www.telegraph.co.uk/business/2016/06/12/brexit-vote-is-about-the…
Yes, it is certainly more profound than all the talk about posible temporary market disruptions due to Brexit implies. The social contract we have all taken granted for so long - which puts our interests first (and not e.g. those of Chinese investors, Indian students or Syrian refugees) - has been torn up by those in power.
This situation needs to be corrected. We need much stronger elements of direct democracy to check and balance a political establishment which obviously thinks it can screw us over. In Britain a Brexit would be crucial in showing a corrupt system its limits.
As to French centralism, it only and barely survives because stupid German politicians keep bailing out France in the background. If Greece had gone bust, French banks would have been by far most exposed and France would have been humiliated.
It has all gotten too dirty and full of lies. We all stare at OCR rates instead of building a viable economy that assures our prosperity. Things need to change or we will pay a brutal price for our collective denial of realities.
Rodger great comment.
Its incredible how many economists/journalists go on about how marvelous the economy is when GDP per capita is hardly moving, wages are fairly stagnant and it seems that the entire economy is driven by immigration, property prices and ballooning household debt.
Thanks Joe. Not sure why but the mainstream view seems to be that immigration is always good and capital inflow is always good. Reality is more complex. Some immigration is good, some capital inflow is good. Capital inflow that brings investment into new productive business (like an MDF factory) is probably good, but that is used to legitimise the property game where vastly larger sums are spent putting up shiny new office blocks and apartment towers. On the bright side, once supply exceeds demand in 2 or 3 years time we should have a large surplus of cheap apartments and office space in Auckland which should last us a few years. Good for buyers, not good for those who bought at the peak.
Wages are flat because of immigration. Instead of paying more for skills that are needed we import them, thereby stuffing up the natural mechanism whereby higher pay leads to more people gaining those skills.
Only a few lunatics want to join the EU now
Switzerland has withdrawn its application which is pretty significant.
I am from Switzerland, living in NZ for 24 years now. I still remember voting (as we do in Switzerland) to join or not the EU. The government pleaded the people to vote to join, that Switzerland could not survive alone in the middle of Europe, the people voted against joining. Now a quarter of a century later Switzerland is doing so, so much better than all countries in Europe, by NOT having joined the EU
But Switzerland has always had a unique position, and has successfully and selfishly played the rest of Europe off against itself, all the while happily adding to those numbered bank accounts, hasn't it.
To be fair it's a unique set-up with 3 major peoples who have alternately been at each others' throats for much of Swiss history so one can understand the desire to stay out of continental wars that would tear the country apart along linguistic lines.
Britain on the other hand was Europe's tired bulwark for over 500 years against squabbling royals, Catholic extremism, Gallic imperialism, Prussian militarism, facism whether Latin or Teutonic, and communism... not to mention Slavic genocide...
The reality is it's not clear where the modern UK is most at home or does the most good - in or out.
One of the problems with the world now is that we are tied up up in a mesh of artificial constructs that shield us from reality and dis empower us from taking action to address the important problems in our world. For Britain and the European counties, the EU is such a construct. In breaking free of it, Britain may face some considerable strife initially but they will also be free to sort out many of the problems that the EU has caused them. Long term they will probably be better off because the EU has some very considerable and fundamental problems that it is unwilling to address.
This article is another where people in finance tend to concentrate on the issues that everyone is talking about. News reports on these issues get parroted in an identical manner on all the major websites.
I personally think that the next major shock to the financial system is equally likely to come from some source yet unknown. It may be an earthquake in a major country. It may be a new war. Who knows. These things can come out of the blue.
Planning (if its possible) for the known ones is understandable and indeed prudent, but it is the unknown ones which in my view will hurt the worlds' financial systems the most dramatically.
That's been troubling me too, 'uninterested'. The biggest shock affecting a banking system so focused on housing (driven by an uneven tax system & completely open to overseas investment) is anything that affects interest rates. Not expected to change much anytime soon of course, but for, as you say, an unknown external shock. And we are vastly more exposed to this than ever before. House prices have catapulted, and so has household debt (and risk quantum). And low interest rates are especially damaging in terms of risk likelihood. When mortgage rates were 15%, most people could manage at 17%. But if a great many of those who bought in the last few years have big mortgages at around 4% and it goes up 'only' 2%, that's a huge 50% increase in mortgage repayments. My expertise is in crime prevention associated with criminal financing, so maybe this broader view is too simplistic. I hope so...
Yes agreed, though when interest rates were high here, house prices were exceedingly low. As an example you could build a four bedroom house on the North shore for $150k NZD in the early 2000's and that's a weatherboard home not a leaky polystyrene home.
If there is a Britexit which I still doubt will happen (My vote is to remain in the EU, winging it way back to the UK as we speak). It will mainly effect the NZ IT and Service industry, ones that have 24hr world coverage.
This will simply be due to the NZD being too strong. I remember working for a US IT company in the UK and being told that they were shutting down operations due to the the Pound being too strong against the USD!
Also this may have an impact on Brits (like myself) retuning to not just the UK but also to wider Europe due to much higher salaries. As my cut off point to moving capital was 2.5 and we're currently hovering around 2 NZD to the pound. It's a bit frustrating as before the Auckland house price boom, it was 2.8 to the Pound as standard. Lots of UK Expats are now holding off expanding their companies and moving capital due to the high NZD (I'm sure it's not just the UK that will feel the same way).
I guess you want the legitimate capital not the sneak it past the government or ill gotten gains or otherwise?
CJ, maybe it's a typo but there is no way you could build a 4 bedroom house for $15k in 2000. I'm an architect with my own practice since 199., Around 2'000 you needed minimum $1000/m2 to build on a flat site so I would suggest min $200k + gst + professional & consent fees + landscaping
I see in the US build price has not budged in 40 years - still around the USD1,250/m2 - though house size per person has doubled in that time. No wonder houses are relatively higher if the average person now wants twice the living area.
If you have a spare hour I would recommend watching this BREXIT doco.
https://www.youtube.com/watch?v=UTMxfAkxfQ0
Very informative on the history of the EU and how going forward, Britain would be much better out than in.
I found the comment fascinating about the effect of WW2 on attitude to government running things; it was viewed postively here and in Britain (leading to stagnation and decline) but as a very bad thing in Germany. Price controls were eliminated in 1949 in Germany (and 90% of debt written off) whereas they lasted until 1956 in Britain. Germany's economic miracle was the result. Our first reaction to a problem is still:
"The government/council should do something about it."
The US pre WW1/income tax era - the horror.
"American taxpayers and businesses spend 6.1 billion hours every year complying with the income tax code, based on IRS estimates of how much time taxpayers (both individual and businesses) spend collecting data for, and filling out their tax forms. That amount of time spent for income tax compliance – 6.1 billion hours – would be the equivalent of more than 3 million Americans working full-time, year-round."
Yes RW. And forced upon France and Britain by the perfidious Yanks, who had also interfered with the Versailles reparations provisions too, making it easier for Germany to rearm in the '30's. They (USA) then went on to force their former cobbers to abandon the Suez, in 1956 - Britain having supported the US prior acquisition of Panama!
Regards, EP
I also continue to be amazed that many Kiwis expect solutions from a political system that has created the problems in the first place. It is irrational.
Germany is past its peak now. Merkel started her political career in the East German Communist Party and she remains a Socialist at heart to this day. She has wound back a lot of the achievements of previous governments and steadily increased taxes, regulations and overall state quota. Worst of all she has re-introduced an autocratic style of rule to Germany. Nearly 100 years after the disasters of the world wars Germany is bullying its neigbors again, this time not with tanks but with aggressive moralism.
Most people are unable to distinguish between PROBABLITY and CERTAINTY.
That things WILL change for the better or worse for our economy is a CERTAINTY, the PROBABILITY of it going either way is now no-longer 50% .
That unless we do something really stupid , that change to our fortunes will be triggered from outside NZ and this has a high PROBABILITY .
BREXIT while it has a 50% probability according to Polls , is CERTAIN to have an effect on us.
My advice is to keep personal debt at manageable levels ( like our Government does) or we are CERTAIN to find ourselves in trouble
I reckon it's probably going to happen. It's scary because Brexit looks like a power grab by the loony far right (plus the economic shitstorm to follow). Seems like they've managed to convince many at the bottom of the heap that the EU is to blame for their woes.
Thankfully I'm out of the place for a few days. The UK feels toxic at the moment.
That's the whole point isn't it - you get to have an election rather than have laws made by a pack of unelected, unaccountable, unrecognisable eurocrats (10,000 earning more than Cameron at last count isn't it?). Time to man up and run your own show - worked out alright for Norway and the Swiss etc. Electing leaders isn't that scary - real democracies do it all the time. The ability to kick them out the next time round is the goal rather than having a bunch of career "party list" hangers on.
Norway is a slave to EU regulations without a seat at the table. Switzerland is a money laundering / banking enclave.
It's not perfect, but the European parliament is elected and plenty of good regulation has come out of the EU. Throwing all the toys from the cot isn't going to be the best solution.
I probably earn more than Cameron. It's not that much in the scheme of things.
The EU Parliament is elected, but does not follow the 1-man-1-vote rule. For example, Luxemburg is overrepresented by a factor of 100 relative to Germany. Because 1-man-1-vote does not hold, it is also not possible to elect parties outside the home nation which makes the parliament a lot less "European" than its name implies.
That Norway is a "slave" and Switzerland somehow criminal is not fact based, but pure prejudice.
Which good regulations have come out of the EU? The EU is good for developing international standards, not much more.
You really think that 10000 Brussels bureaucrats deserve an annual salary exceeding 300K NZD?
Norway seemed to get all the disadvantages of the EU without any of the advantages. They might as well be a fully fledged member.
Norway is obliged to be part of Europe’s passport-free Schengen travel zone. Norwegians also have no say in EU rules and have no representatives in any of the bloc’s institutions despite paying a considerable amount each year for its semi-detached relationship with the EU.
That quote from an article saying that Norway's Prime Minister advises the UK not to leave.
Norway's Prime Minister Erna Solberg warns Britons ‘won’t like’ life outside EU
I wonder if women leaders have different feelings about national independence compared to men? Am I allowed to wonder?
Norway is so rich and with a low population could really be sitting pretty. Why be part of Schengen? Why accept refugees from hot countries or from anywhere really?
I am pretty sure that if and when the Brexit referendum fails, it will be due to the female vote. Women are rarely interested in and well-informed about politics and can be easily manipulated through emotions. A lot of rumour is e.g. being spread around the Cox murder to somehow implicate the Brexit in her death. Had the assassination been i-word inspired, the case would have been written off immediately as insanity.
Merkel is a basket case. So were C. Rice and H. Clinton. Corporate leaders such as C. Fiorina, M. Mayer and to a lesser extent M. Whitman: all utter failures, too. J. Yellen also seems out of place.
Women tend to follow the crowd or whatever they think the crowd is. Most women prefer the illusion of security to freedom and staying in the EU is overwhelmingly portrayed to mean security.
They really go the better of us, haven't they? It is frustrating how primitive many homo sapiens are.
It's the age of Trump now, didn't you get the memo?
Women do have a different perspective on things otherwise why all the pressure to get more women in politics and management? I recall the other day someone claiming Japan needed to give its women more power if it were ever going to pull itself out of the doldrums. They must be different.
But what if that perspective is kind of fatal? Imagine for a moment if the crowded refugee boats were filled with nubile young women seeking boyfriends in the West? Men may look at things differently in that case. Yet they are mostly filled with young, virile men. Women, being women would feel some sort of different impulse to men. A combination of sexual and motherly urges maybe. Men, certainly the real men of yesteryear rather than the sad examples we have today, would feel threatened. Maybe women unconsciously sense how sad their own men are today? After all they did just give away all their power. Are women, deep down, really impressed by that?
It is a fact that most women prefer he-men. It is also a fact that after the mass sexual assaults in Cologne some media derided German men for not protecting "their women" from those poor little "refugees". So what now?
You can pretend to listen to a woman every now and then to make them happy, but when things become critical you need to provide, protect and make rational decisions. Or how else can you run a family? Outsource it to WINZ?
The amount of nonsense people talk these days, you could get the impression they never actually lived. Scary.
Btw, the so-called German finance minister said a few days ago that Germany needed illegal migrants because otherwise it would "degenerate through inbreeding". So the so-called German government regards Germans as some sort of cattle and just imported a million bulls for breeding. This betrays a Nazi attitude of purest manifestion, and this is the type of government a majority of Western media celebrate for its humanity.
Something is seriously out of whack here.
Gosh, Peter Pan, isnT it a real shame that these stupid women were ever given the vote. Of course they are not capable of making informed judgements on their own and the world would be so much better if they just stayed at home and brought up the children, leaving all the important decisions to Us men.
After all, our record is pretty good isn't it? Lots of wars, the GFC, etc.
Yesterday's men were much more attractive to women than today's metro-sexuals. This is why so many are keen on welcoming men of a different culture who allow many wives and insist their women stay indoors and cover up from head to toe. Woe betide any Western man who complains about this.
Oh gosh, yes. Women are the better humans, right? Just have a look at what is happening in any company coffee corner in the world and convince yourself that women just couldn't be violent.
One H. Clinton has the blood of hundreds of thousands in Syria and Libya on her hands. This is what happens when arrogance takes the place of rationality in politics.
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