Effects of Brussels on Brexit and a Potential EU Breakup!

by Victor Sperandeo with the Curmudgeon


As usual, all opinions expressed herein are those of Victor Sperandeo.  Many are in italics and others are expressed with added emphasis (!!!) References have been included as hyper-links.

Introduction & Overview:

Europe has been fraught with controversy for months due to its inability to effectively deal with the migrant crisis, which has worsened this year due to the civil wars in Syria, Iraq, and Libya due to ISIS (Islamic State and other names) involvement.  The European discord could get a lot worse and even lead to disintegration of the EU, especially if the UK decides to leave the 28 European nation block in a referendum (Brexit) on June 23rd. 

The lack of security that permitted the Brussels bombings last week could also be a negative factor.  French philosopher Bernard-Henri Levy said “Europe is in a continental state of emergency” in a stunning BBC World News interview.  Levy said European security has not been able to prevent ISIS from terrorizing and stopping life in European cities.

Sadly 31 people (including four Americans) were killed with at least 340 wounded in Tuesday's triple attacks on the Brussels airport and metro.  The three nail bombings were attributed to ISIS, which (according to multiple sources) has established a well-organized network of terrorist operators in Europe. 

Another urgent concern, reported in Saturday's NY Times, is that the ISIS is seeking to attack, infiltrate or sabotage nuclear installations or obtain nuclear or radioactive material in Belgium. This is especially worrying in a country with a history of security lapses at its nuclear facilities, a weak intelligence apparatus and a deeply rooted terrorist network.  There are a variety of other risks involving Belgium’s facilities, including that terrorists will shut down privately operated nuclear plants, which provide nearly half of Belgium’s power.

Aside from the obvious horrible consequences of the Brussels terror attack and potential for nuclear sabotage, there are potential economic consequences which may affect the whole world, especially our finances.  Those consequences are explored in this well researched and documented post. Victor concludes with a candid assessment of the financial implications of an EU breakup.  Fasten your seat belts when you read it.

Implications of the Brussels Terrorist Attacks on Brexit:

Will the Brussels terrorist attacks last Tuesday influence this summer's vote on whether the U.K. should exit the EU?  Ben Emons, managing director and portfolio manager at Leader Capital, told Worldwide Exchange in an interview: 

"The security of Europe continues to be in question.  Political pressure is clear and this will only fuel skeptics (about the UK staying in the EU).”

Why is Brussels so important? It's the home base of the 28 nation European Union (EU), the European Commission (which writes European laws and adjudicates them), and headquarters of NATO.  Brussels, the capital of Belgium, is also a major hub in Europe. Therefore, the terrorist bombings have been a very telling blow to all of Europe and its policies.

This Friday March 25th, the NY Times wrote that “fervent advocates” of Britain’s exit from the EU got a boost when Richard Dearlove, former director of MI6 (the British intelligence service) said that there would be little cost and some benefit for British security if it left the European Union.

Mr. Dearlove’s views were supported by David Davis, a Conservative legislator and a former Europe minister, who told the BBC that Britain was at risk, despite being outside the Schengen visa-free travel area, because it could not prevent any European Union citizen from immigrating to Britain. By leaving, said Mr. Davis, a supporter of withdrawal, “we’re giving ourselves back one of the most important weapons we have” against terrorism. That included the ability “to stop people at the border, check people at the border, deport people we don’t want to keep, something we can’t do at the moment, and make sure people are who they say they are.”

David Petraeus suggests the UK should stay in the EU, as per a March 27th editorial titled: “Brexit would weaken the West's war on terror.” 

What do UK voters think? On the morning of the attack (Tuesday) the polls from The Telegraph (a major UK newspaper) reported referendum vote poll numbers.  51% wanted to "remain” in the EU, while 49% wanting to "leave" the EU.  No reliable poll has been taken after the Brussels attack but the number wanting to “leave” would certainly be higher now due to EU security concerns.

The universal assumption of the UK “establishment politicians,” especially the Tories headed by David Cameron (think of Neo Con's and Jeb Bush in the U.S.) believed that the people would vote to remain in the EU.

[Similarly, the U.S. establishment GOP believed Donald Trump would never be the GOP nominee for President and were hugely overconfident, but 100% wrong so far. The WISH that Trump would lose was based on the emotional hatred of him by the politicians in power (whose power would be weakened or lost if he were elected President), as opposed to objective analysis of the voters/public view of the competence of the GOP's broken promises and large corporate New World Order agenda.]

The same mistake is occurring in the UK. The break-up of the EU is now amplified by the Paris and Brussels attacks, which could be life and death to the EU, and thereby could have a recessionary (or worse) effect on the whole world.  A vote to leave the EU could instigate other countries to leave because of the open border policy of the EU, pushed by the EU leaders, especially German Chancellor Angela Merkel.  Moreover, the UK leaving the EU may cause the total break-up of the EU within several years.

Hungary's PM and the Migrant Crisis:

Euro News reported that Hungary's Prime Minister Viktor Orbán told a Swiss newspaper that the migrant crisis may be a means of importing left-wing voters into Europe. The Hungarian prime minister allegedly acknowledged that “the suspicion has inevitably emerged that there is some kind of master plan behind all this.” Mentioning what he describes as “left-wing studies about the future of the EU and a possible European super state,” Mr. Orbán subscribes to the view that the nation-state as a concept is being eroded and says the European Left, and “radical American Democrats” have come up with a theory for this ˝new world˝ idea.  He has no doubt that this is connected to the issue of migration. 

Hungary has built a fence to keep immigrants out, which is a not permitted by the EU rules of “open borders.”  Immigration should be viewed as a worldwide issue of the political establishment versus the citizens.

Other European Nations on Brexit, Migrant Crisis and EU Survival:

1. Poland seems to be too right wing for the EU.  In a January 18, 2016 article titled "Brexit will trigger collapse of EU, warns Poland,” the Telegraph noted that Poland believes if the UK leaves the EU, it will collapse.  A British exit from the EU could have catastrophic consequences for the bloc, according to Andrzej Duda, the Polish president. "It is not in Poland’s interest that the UK leaves the European Union. We think it would lead to a big crisis and even a collapse if the UK left,” said Andrzej Duda, who took office in August. “In the referendum, we want the British people to vote in favour of staying in the EU.”   

2. Switzerland had an application to join the EU (it's never been a member), but recently withdrew its application, according to Breitbart London. 

"The Swiss parliament has voted to withdraw the country’s long-standing application to join the European Union (EU) amid a row on immigration.  The National Council, the lower house of the Swiss parliament, voted by 126 to 46 to formally withdraw the application, 24 years after the country first applied for membership of what was then the European Community (EC). The withdrawal motion will now go to the Council of States."

Again, the issue is immigration.  "European Commission President Jean-Claude Juncker spoke harshly on Wednesday about countries that seek to keep out refugees. But his words may have fallen on deaf ears. A number of European nations have made clear they aren’t willing to welcome many newcomers, despite the current crisis. The resistance has been heard loudest in Central Europe, although Western Europe has not exactly thrown open its doors either.                                                                                               

3.  An overwhelming majority of residents of the Czech Republic want to deport all refugees, the Huffington Post reported in September 2015.

“Czech Prime Minister Bohuslav Sobotka is “convinced that Europe does not need new plans” for resolving the crisis. He wants any cooperation on refugees to be voluntary. Although Interior Minister Milan Chovanec has said the Czech Republic is willing to provide “financial, technological, human or material aid,” the country has detained some refugees and even written numbers on their arms with felt-tip pens.  A recent poll found that ---94 percent --- (!) of Czechs believe the EU should deport all refugees." (!!!) 

4.  Russia (and Syria) are 'weaponizing' migration, according to a March 2nd BBC News article.  

“Russia and Syria are deliberately using migration as an aggressive strategy towards Europe, the senior NATO commander in Europe has said. U.S. Gen Philip Breedlove – said they were "weaponizing" migration to destabilize and undermine the continent. He also suggested that criminals, extremists and fighters were hiding in the flow of migrants.”

-->For sure, the Chess master moving people around the world is Comrade Putin.

5.  Add Estonia to the list as per a Bloomberg View news story this March reported in the Chicago Tribune. “Some officials in Europe see Russia's hand in the rising migration crisis, accusing the Kremlin of exacerbating anti-Muslim sentiment to benefit right-wing parties at a fragile moment for the European Union…

Speaking to an audience at the German Marshall Fund Brussels Forum last weekend, Estonian President Toomas Hendrik Ilves alleged that these migrants often hide their status as permanent residents of Russia. “You’ve seen several thousand coming from Finland across the Russian-Finnish border," he said. "There is something very fishy going on."

Comment and Analysis:

What's Russia's motivation to exacerbate the migrant crisis in Europe?

My Answer: To move right wing ideologies into power, and then make deals to lift the sanctions on Russia. It seems to be working well.  In Sweden Neo Nazi activities rose 23%.  The rules and regulations of the EU have taken this Nation State to a place never seen in history to my knowledge?

Meanwhile, security remains an unresolved issue. Friday March 25th WSJ editorial reports something you would expect to see as a spoof in Mad Magazine.   From "Belgium's Tragic Terror Lesson” (emphasis added):

"The latest attacks also raise questions about Europe's broader approach to security. Belgium was widely mocked after the Paris attacks when it turned out that A LAW FORBIDDING POLICE RAIDS BETWEEN 9PM AND 5 AM MAY HAVE ALLOWED ONE OF THE ATTACKERS TO ESCAPE A POLICE DRAGNET." (????) Really!

This only guarantees more terrorist attacks will reoccur.  Who wrote these laws? The same people that created Sanctuary Cities in the US?  Steven Spielberg couldn't make this up!     

From a March 24th FT editorial: “Crystal Balls are no way to predict a post-Brexit world," by Chris Giles (on line subscription required):

"The best assessment has come from Bank of England governor Mark Carney who has said a Brexit vote is the biggest domestic risk to financial stability and also noted that Britain currently relies on "the kindness of strangers" to finance its twin current accountant budget deficit…

A coherent response from UK “Leave (EU)” campaigners would therefore be to reveal the type of trading arrangement they would seek with the EU after Brexit, detail the regulations that they would like to change, outline the migration rules that would apply and provide evidence of appetite for rapid trade deals from third-party countries.”                                                                                                                                            


This brings us to the end game! If the UK leaves it will cause the beginning of the end of the Euro currency and the EU.   That in turn would cause Europe to go into recession, then leading to a possible depression.  As all countries break away from the EU, debts will default. The 28 nations of the EU are committing suicide.

Who will be responsible for the trillions of Euros used in the European Central Bank (ECB)'s massive QE programs if the UK and then other nation's leave the EU?  The ECB will (thereby) end in the future.  Note that the ECB is a creation of the European Union. If the EU breaks up who will be responsible for the ECB's liabilities and/or debt (assets) ownership which is reported to be 2.9 trillion Euro's?  

Curmudgeon Note:  The ECB is responsible for monetary policy of the Euro-zone, which are European countries and affiliates that use the Euro.  The UK is in the EU but NOT in the Euro-zone as it has its own currency (Pound Sterling) and central bank.


As nations leave the EU the Euro's value would diminish and could effectively become worthless.  Countries leaving would recreate their old currencies e.g. French Franc, Italian Lira, Polish  Zloty, Greek Drachma, etc.

It becomes even more complicated when we realize that all European central banks are completely publicly owned (unlike the US central bank (Federal Reserve) which we've previously explained was privately owned).  They are corporations with 100% government ownership. They do operate as 'independent' entities, though. Before the ECB they set interest rates and managed the volume of their own money without government interference.

I'm assuming no-one in the "European commission " has talked about this potential end of days scenario!  An EU breakup/disintegration would affect every nation in a recessionary way.  Gold will be the only winner as the Euro currency is sold. That's my simple take, if the June 23rd UK vote is to "leave" the EU.

All this taken together boils down to what Edmund Burke said:  "Nothing turns out to be so oppressive and unjust as a feeble government."

Couple the above with Winston Churchill's observation that "The best argument against democracy is a 5-minute conversation with the average voter." 

Good luck and till next time...

The Curmudgeon


Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

Copyright © 2015 by the Curmudgeon and Marc Sexton. All rights reserved.

Readers are PROHIBITED from duplicating, copying, or reproducing article(s) written by The Curmudgeon and Victor Sperandeo without providing the URL of the original posted article(s).