'Return of The Lira' and all EZ currencies, or 'The Empire Strikes Back'?

Britain voted to leave the EU and not many saw that result coming. I did. 

I can't say that I wasn't slightly surprised, though. 

I was up all night, as I'm sure many of you were also, watching the votes come in on Friday, June 24th, 2016. 

51.9% vs 48.1%  were in favor or leaving the EU, sending the Euro STOXX 50 index down to 9.73%, the German DAX down 9.14% and the FTSE 100 index gapping 8.39%at the open while Sterling dropped to its lowest level since 1985 at $1.33, a move that I had been warning about weeks prior to the vote.

Due to my profession, I had been repeatedly asked for my opinion on this whole European project and I remember very well such a conversation taking place in Italy drinking a coffee in a small plaza's boutique-coffee-shop with what could have been my brother in law to be, if it wasn't for a relationship with an Italian girl that proved to turn out a little like leaving delicious Italian ice cream out in the sun too long; "L’amore è cieco," as the famous Italian saying goes! 

It was back in 2008, or there about and the financial market's crisis had taken its toll on Italy.  It was looking that things would get a lot worse before they could get better. We were discussing the impact in Italy who had already suffered a recent history of excessive corruption of public finances that had dwarfed the backbone of the economy supported by the Italian state-owned companies. However, after a round of privatization at the end of the 1980's and at the beginning of the 1990's, there had been some signs that the economy was improving due to the diminishing role of the state. This had opened room for private investment and by 1999, Italy had qualified to adopt the euro and entered the European Monetary Union (EMU). The Euro was officially introduced into the economy on 1st of January 2002. 

Return of The Lira?

What we both agreed on that day in the coffee shop was that the EZ project was doomed to fail from the get-go and the financial crisis in 2007 would be its downfall, proving how fragile the EMU was and how fragmented the single currency's European nations were when looking at each part of the block individually as individual nations with very different economic requirements. We discussed how the Lira and all other EZ currencies would eventually return back to the FX screens.  

First, however, how would Europe get through this crisis and what was the road ahead looking like for Italy and EZ nations in general? 

For the Italian government, under the administration of Silvio Berlusconi and later under Mario Monti, there had been little choice but to pass huge austerity packages and the same came true throughout Europe where long-term growth prospects remained limited where employment policies based on expansion in the proportion of temporary positions resulted in low wages and restrictions of the rights of workers, mainly in the younger generation. 

Brexit is not the catalyst for impending global recessions 

The ramifications of low wages during recessionary periods are heightened when during such a crisis as 2007's. The nature of this crisis was almost unprecedented. I say almost because we never seem to learn from our mistakes and to tell you the truth, things are about to get a lot worse - Brexit or Italian Banks?

Currently, the Italian banks are just about on the brink of collapse due to global bad debt crisis, and like trying to handle a string of stray-ward mozzarella to a slice of sloppy and too hot to handle pizza, a pending and embarrassing 'fail' is in sight because the banks are being artificially propped up by unreliable assets that will soon be taken away from them, and that could be the start of the next crisis, so I would forget about Brexit. 

Brexit is not going to be the catalyst for another financial crisis, though. We have been in one ever since 2007 and matters have not got any better, it just seemed that the world had been doing a little better due to the Central Bank's policies and subsequent 'patchwork (eh-hum, fraudulent activity of printing counterfeit money I mean). 

Brexit should not be blamed for the impending downturn, if anything, it could just be the first EU nation, that rightly so, has simply had enough of a very sick global arena, austerity and an economic system run by a Federal Super State while wishing for their political self-determination again that had otherwise been increasingly marginalized over the years an time to come. In other words, the EU is the ultimate synarchist dream of a true United States of Europe and the people of Britain spoke up and were not having any of it!

It's about protecting one's culture and citizens, it was never about race

At the same time, culture and immigration were at the heart of the debate. It is sad, however, that the nation could be so divided on this subject, not for the idealism of a one-world living in peace and harmony no matter where you are coming from so long as you come in peace, of course not, but in the sense that there has appeared to be a huge misunderstanding by so many on both sides of the vote. 

Britain has been one of the most multi-cultural places in the world and it will remain so. However, what had started to occur was huge segregation between different ethnic groups and religions and trouble had started to brew between groups that were, albeit,  the minority, but nonetheless were starting to make a widespread impact on Britain, like a toxic virus spreading and affecting the minds of the people that had previously not given a thought to whether you were a Christian, a Muslim, a Jew, Chinese, Japanese, black or white, and like MJ said," ...it doesn't matter...". 

Terrorism has been a major catalyst as well and history has proven that if there is no 'cultural assimilation' in a society, there is no hope of a structured system of human organization for largescale community living that should furnish the protection, continuity, security, and a national identity for its members. The immigration pattern in the UK has opened the door to those who have had no desire to disconnect linguistically, culturally or even politically.

This 'cult' of multiculturalism inside of the UK has almost been encouraged by the EU laws within a migration crisis, enabling groups to stay separated from the UK's culture itself, with migrants on the other hand arriving into the UK for the economic benefits, but not wanting to be a part of the culture anyway, and that has been at the heart of the Brexit debate on immigration, and free movement of people. The British public does not want to continue living alongside these 'groups' who do not want to disconnect, especially given the heightened fears from the attacks on Western civilization, starting with 9/11 in America, the 7/7 2005 bombings in London. Now these attacks are almost weekly and claimed by Islamic extremists across European nations such this year's attacks on the 22nd March and three coordinated suicide bombings that occurred in Belgium and the most recent atrocities occurring in France being the eighth terror attack in just 19 months that have left nearly 230 people dead and hundreds injured. Shockingly, PM Valls made the statement following the attack in Nice that killed at least 84 people and injured dozens.

“Times have changed, and France is going to have to live with terrorism, and we must face this together and show our collective sang-froid,” he said. “France is a great country and a great democracy and we will not allow ourselves to be destabilized.”

This has lead to an uproar in France that his assumption that “France-is-going-to-have-to-live-with-terrorism” has only bolstered France’s reputation as a country that surrenders to these evil groups. 

A case for a failed EU over open borders, immigration and heightened threats of terror attacks?

Overall, there is an underbelly in the British population that they are not going to stand by and allow an EU superstate dictate British politics or rules on immigration, forcing a call on its citizens to learn to live with open borders and the threat of terrorism becoming the norm in their daily lives. As further attacks continue, other country's citizens are unlikely to stand by and welcome an open border policy either, further forcing their governments to their own referendums on the EU and building the case for a failed project in Europe. 

Europe is a disaster

In respect to the economies of Britain and the EZ, all I can say is things can not get much better from here overnight, but the Bank of England had planned for a Brexit and they will do all they can to support the economy, likely by flooding the market with pounds through QE, keeping the pound weak. That is good for exports, bad for imports, but it will at least keep interest rates low for the near-term and help consumer confidence. The same would go for any other country voting to leave the EU and the euro currency, be it Italy, Holland, France or Greece who could all be next to hold such a referendum. 

Europe is in for an 'indefinite long winter of discontent' when summer passes this year and there is very little the ECB can do about the negative implications of that with very few tools left they have in its box of tricks. It is my bet that the EZ bloc nations, who are on the fence, will be looking at Britain as their lab-test-rat and will see that indeed the protectionism culture of the super state that is the EU may not be all that they had been promised as Great Britain goes on to lead by example outside of the EU. 

Or, will the Empire strike back

The leaders of the EU could, of course, make life very difficult for Britain trying to negotiate its trade agreements with them and therefore put those nations that were on the fence firmly back behind the walls of empire and ruin the rebel nation's ploy to take back their sovereignty and currencies. 

Either way, the biggest threat to Britain was not the fact that it had voted to leave the EU, far from it, nor that the EU will impose tariffs for there are plenty of other deals to be done elsewhere around the world's super and developing nations. What, in fact, every country needs to be more aware of is the pending global financial crisis that was always on the cards well before Brexit and that is due to the fact of our "spend today and pay for it later" global financial system encouraged by the world's Central Banks. In my humble opinion, the EU will not wish to cut off its 4th largest trade partner, not with what is just around the corner - That would be cutting off its nose despite its big Emperor of the darkside-style's ugly face. 

Now, keep an eye on the Italian Banking crisis, or will it be Deutsche that starts things off, or will it be the Fed moving to QE4 in 2017?