📜 Brexit Update: Deal or No Deal? (w/ Nigel Farage & Larry McDonald)
LARRY MCDONALD: Nigel Farage, it's a pleasure to have you back here with Real Vision. NIGEL FARAGE: Good to be back. Exciting times. LARRY MCDONALD: What you've accomplished this year-- and we sat down in the spring-- blow by blow, you've called this thing pretty accurately. I was at an event where you did a speech in the US. I notice you've been working with some of the financial institutions you do, great speaker. As a public speaker, I remember this year, and even back to last year, you were talking about Theresa May not making it through the May Plan. NIGEL FARAGE: Well, I think I helped to get rid of it, actually. LARRY MCDONALD: Wasn't a loaded gun, I hope not, but God bless her. She had incredible spirit, and she was inspiring to most of us around the world, just watching what she went through. But at the end of the day-- NIGEL FARAGE: Well, you say that-- look, what is Brexit? What is Brexit? LARRY MCDONALD: What is Brexit? NIGEL FARAGE: What do people want from Brexit? Now, I'm the godfather of this, so I think I've got a reasonable idea. The point about Brexit is to break free. It's about political independence. It's about being a self-governing nation, where your laws are made by your own representatives in Parliament and where the highest court in the land, at times, is called into a judge. And what we've seen now, 3 and 1/4 years since the Brexit vote, is an attempt by the political class to redefine Brexit as, somehow, Brexit is staying part of the customs union, or staying part of the single market. And it is not. And here's Mrs. May's problem-- I think she went into this as a remainer, but as a Democrat. LARRY MCDONALD: I see. NIGEL FARAGE: Saying right, I'm going to do the best job I can. She gave a big speech at Lancaster House, where she said all the right things. LARRY MCDONALD: For the audience, that was about-- NIGEL FARAGE: Lancaster House was in early '17. LARRY MCDONALD: Early '17. NIGEL FARAGE: She gave a big speech, and I thought, gosh, here's a British prime minister saying things using words and phrases for which I've been condemned consistently for the last 20 years. And this is now mainstream. And then, within a few months, I think the Civil Service had got hold of it. And suddenly, rather than Brexit being a clean break, it became a close and special partnership. And really, ever since that time, Brexit's been confused, and there is an attempt to redefine those that want a clean break as somehow being the extremists. Public opinion does not suggest that. So I think Mrs. May started off with good intentions. She then went wrong. And the longer this has gone on, the more empowered the Liberal Democrats have felt in Britain-- even the Labor Party, which have gone from promising to deliver Brexit, now wanting to have a second referendum. So the longer that time has gone on, the more that Parliament, the more that London has tried, effectively, to begin by watering it down. And now, it's an outright blatant attempt by Parliament to stop it from happening. That's where we are. LARRY MCDONALD: To undo the will of the people, essentially. NIGEL FARAGE: Yeah. And they say things like, people didn't know what they were voting for, as if we're all knuckle-dragging skinheads, and they somehow know better. It's a sense of moral superiority that many of the remainers have. They say that we know more now than we did then. And I think they really do think that, somehow, we've changed our minds. Actually, the real hard evidence is about this-- remain right now is about 35%, leaving with a clean break Brexit-- which is just goodbye-- you can whistle dixie for your $39 billion-- we've just had enough of all of this-- let alone be insulted by the Luxembourg prime minister-- I'll come back to that-- is about 35%. And there are 17%-- between 15% and 20% who think, yeah, we must leave, but keeping a reasonable form of economic relationship might be the easiest way. So if you look at it, leave significantly has a lead over remain-- far bigger than it did 3 and 1/2 years ago. And if you then give people a binary choice, up against the wall-- October 31, in a couple of weeks' time, is it leave with no deal, as they phrase it, or is it extend and have a second referendum? Then leave's got a big majority. So we're in this very, very strange world where, in many ways, public opinion towards Brexit has hardened. More people than ever want it. LARRY MCDONALD: Which explains the rise of your Brexit Party. NIGEL FARAGE: And that's why a brand new party, the Brexit Party, could just appear. I sort of pulled the lid off, like a Jack-in-the-Box. It just appeared, and reached the top of the-- it was topping the polls and in this country within two weeks. And this is normally a country-- LARRY MCDONALD: And the seats in the European Parliament, relative to-- how many new seats in the European Parliament? NIGEL FARAGE: We won 29 of the seats-- LARRY MCDONALD: 29. NIGEL FARAGE: --in the European Parliament, and we got more than 50% more votes than our nearest rivals. It was a dramatic victory, but it kind of showed the disconnect between Parliament and the people. Boris took over. Many would argue this-- that without the Brexit Party being formed, Theresa May could have limped on a bit longer. Without the Brexit Party, Boris probably wouldn't have become leader, because what the Brexit Party did was to reset the agenda-- to say, look, we've had all this rubbish. This is what the vote was about. This is what we want. Boris finds himself in a very, very tight spot. He's got this parliament that is majority remain. He's also, I think, made a catastrophic mistake, and that is to what we call Queen's Speech-- you would call it a State of the Union Speech in America-- once a year, setting out the legislative program for the coming year. We normally have Queen Speeches every single year. We've not had one for a few years. In fact, this has been the longest time without a King or Queen's Speech since the English Civil War. So of itself-- LARRY MCDONALD: And this speech is coming up-- NIGEL FARAGE: October 14. LARRY MCDONALD: October 14. So inside of 30-- inside of a month from now. NIGEL FARAGE: Yeah. This speech of itself not unusual, but the timing of it, with the Brexit deadline of the 31st of October, and the consequence of it-- meaning that Parliament is now closing for a few days, as we run down to that-- has been a catastrophic error. Because what it's done-- it's united remainers in the most amazing way. It's led to this extraordinary case going on in our own Supreme Court, as has the government acted lawfully. Did Boris lie to the queen? Extraordinary things that are going on at the moment. I think that was a major, major error that Boris made. LARRY MCDONALD: And he was thinking-- doing this and calling a-- I wouldn't call it a time out-- but in putting Parliament in the box-- NIGEL FARAGE: Proroguing is the word. LARRY MCDONALD: Proroguing-- by doing that, he thought he would have the bandwidth to negotiate with the Macrons or the Brussels-- France, Brussels, Germany-- without interference that Ms. May dealt with, that what he was thinking. NIGEL FARAGE: Yeah, but actually, all he's, as I say, all he's done is just to unite remain. LARRY MCDONALD: Yeah. NIGEL FARAGE: It's been a mistake. Now, what I can tell you is this. I was sitting in the European Parliament yesterday. I exchanged the usual pleasantries with Mr. Juncker and Mr. Barnier, as I always do. And I sat through a near four-hour debate in that chamber yesterday morning, and there is a big change of tone coming from Brussels. LARRY MCDONALD: That's what I wanted to ask you. So this is important, because with-- our audience is a financial audience. NIGEL FARAGE: Yeah. LARRY MCDONALD: The Bear Traps Report-- services like ours focus on political risk for the markets. And in talking to our clients around the world, there's a couple of-- not assumptions, but things that people have been working and pricing in in their mind. Number one, you've had almost four years now since the original Brexit vote almost had been next year. And a lot's been priced, in terms of banks leaving, and all-- a lot of the dark scenario has not turned up. And the financial GDP, in some respects, is even stronger in the UK BMI than they are in Germany. The question is, from clients that are spoken to this morning, is since Miss May dealt with this a year ago in December, had that famous ride in the parliament floor, where she held things together, the clients around the world think that this German zoo, which is business confidence, down 15%, 20% over the last year-- PMIs, negative yielding bonds on the planet Earth a year ago, when Miss May was-- trying to think, it was $12, maybe $10 trillion-- now we're up to $17. So the political-- I'm sorry-- the economic pressure on Germany, France, Brussels to really work with you, I think, has changed. NIGEL FARAGE: They're scared. They're scared. LARRY MCDONALD: So you have a stronger hand. NIGEL FARAGE: Here it is-- Boris gets the job, and he inherits the withdrawal agreement, the new European treaty. It's been rejected three times by Parliament. Why? Well, there are lots of reasons, but the main one is the so-called Irish backstop, which is virtually an attempt to annex part of the United Kingdom. It's just not acceptable. LARRY MCDONALD: And that's the Irish backstop. NIGEL FARAGE: That's the Irish backstop. Boris says they change the Irish backstop, or we just leave with no deal. LARRY MCDONALD: Brussels, they've-- NIGEL FARAGE: They've got to change that backstop, or we will leave on October 31 with no deal. The markets took the talk of leaving with no deal and the short-term uncertainty that that would create, and they kind of believed it. The Jeremy Corbyn, the Lib Dem message, is panic, we're about to leave with no deal. It is rubbish. Boris is not going to leave with no deal. He just isn't going to do it, because his own Conservative Party, his own Parliamentary Conservative Party just won't wear it. It isn't going to happen. So back in July, when Boris first became the prime minister and talked about changes to the backstop, it was all Mr. Tough Guy from Juncker and Barnier. We're not changing a thing. I sat and listened to every word of that yesterday, and spoke to them face-to-face. And one of my colleagues, former stockbroker guy, had a private meeting with Barnier yesterday. They are now scared. They are scared because the European economy is turning down. Things are not pretty. And we are a mega export market for them, and they trade with us. The annual surplus on trade between the EU and the UK is over 100 billion euros. We drink an awful lot of their wine. We buy a lot of their cars. Great statistic-- $110 million bottles of Italian prosecco are sold in the UK every year. LARRY MCDONALD: $110 million. NIGEL FARAGE: Million bottles. It's extraordinary. So they're now getting quite worried. Could Johnson? Is Johnson bluffing? Could Johnson? They are now much keener to assuage Boris Johnson. So yesterday, Juncker said, the backstop is not, for me, an article of faith, provided we get the protections that are needed. And the protections are that the UK would not go rogue and start selling goods into the European Union that were substandard. The protections are no emergence of what's called a hard border between Northern Ireland and the republic, because of the historical 30 years of troubles and all the rest of it. And I think this is what will happen. LARRY MCDONALD: We get an election this year? NIGEL FARAGE: There is a major European summit on the 17th, 18th of October. LARRY MCDONALD: So the Queen's Speech-- NIGEL FARAGE: Queen's Speech on the 14th-- he lays out his governmental program, which will partly be Brexit, but also it'll be other domestic stuff, as well. But the summit's key. LARRY MCDONALD: EU summit. NIGEL FARAGE: The EU summit's key. And I think it is now a strong probability that Boris will come back on the 18th of October-- LARRY MCDONALD: With something in his back pocket. NIGEL FARAGE: --waving a piece of paper, as British prime ministers often do, when they come back from negotiations in Europe-- often wrongly-- and say, look, we've got a deal-- the backstop's not there-- and then try and ram it through Parliament. If he can't do that, then there will be a further extension. So all these big downside risks, short-term risks to the UK, the pound, et cetera, I think they are melting away. LARRY MCDONALD: Yes. When we spoke earlier in the year, you were bearish on the pound, and now you're more-- NIGEL FARAGE: Not anymore. No, not anymore. To me, we're somewhere near the bottom of a long historical downturn. LARRY MCDONALD: Now, walk us through the Corbyn risk. NIGEL FARAGE: So that's scenario one. Scenario one is-- and that will happen. He could come back with nothing, but it's either with Boris. It's either he gets an amended withdrawal agreement passed in Parliament and we leave on the 31st of October, but we leave it on what would be-- well, listen, politically, I'd say, what's the point? Because we'd still be so tied to all of that, but it would be a-- from the market's short-term perspective, it would be a soft Brexit. Or we have an extension of a further-- who's to say-- three months, six months, nine months-- I don't know. I just do not think the no deal clean break is going to happen on the 31st of October. I just don't believe it will. The other scenario is that Labor-- now, Labor, who have been through this extraordinary transformation from being a party that said they were for Brexit at the general election, are now almost wholly remain and second referendum. But they've played a very clever game, because Boris tried to call a general election. They stopped him having a general election, because they know that, if we haven't left on the 31st of October, that Boris's ratings will be down, because he's promised everybody-- LARRY MCDONALD: Yes, yes. NIGEL FARAGE: So here's the big thing. The big thing is, will Boris's Queen's Speech get voted down? Will Labor lead the charge and vote it down? LARRY MCDONALD: Is that a no confidence? NIGEL FARAGE: Well, it would then turn into a no confidence situation. So it could be that we get a general election sometime late November, early December. That's possible. It's also possible that they'll try and bring Boris down anyway. And under-- we've got this new piece of legislation. It's called the Fixed-term Parliament Act, and no one quite knows what it-- LARRY MCDONALD: Fixed-term Parliament Act? NIGEL FARAGE: Yeah. Passed in 2010 by Cameron-- dreadful piece of law, like most things he did. It is possible that they vote against the Queen's Speech, and at the end of two weeks, rather than having a general election, if Corbyn can get a majority, he could become a caretaker prime minister. Now, the market's-- LARRY MCDONALD: And that's a 31-day caretaker situation? NIGEL FARAGE: Well, who's to say how long it would be? But it would clearly be quite shortterm. So there is a possibility of a Corbyn caretaker government. That risk is there, but it wouldn't be a huge risk, because he couldn't do any of the things that he would like. We know what he wants to do, which is tax the rich out of existence-- completely change corporate law in Britain, the sort of Marxist model of workers councils on the board, and-- LARRY MCDONALD: And any empty property in London, he wants to fill it, too. NIGEL FARAGE: Oh, yeah. And private companies having to give 10% of their equity away. LARRY MCDONALD: Bank nationalization. NIGEL FARAGE: And nationalization. It's real Marxist stuff. But again, even if he forms a caretaker government, it will be very, very short-term. So I don't think that, in terms of the way the markets are viewing all of this, there may be significant political turmoil. Might be difficult to predict exactly where this is going to go, but all of the scenarios, at some point, lead to a general election, and a general election in which Corbyn cannot get a majority. He's in real trouble. LARRY MCDONALD: So if Boris teams up with your party-- NIGEL FARAGE: Well, here's the deal-- now, President Trump sees this more clearly than most, because he's a numbers man. But if there was an electoral alliance between Boris and myself, he would win a big majority. He'd win a big majority, the threat of Marxist Corbyn will be gone, and he'd be able to get Brexit done. But I've put a very big offer on the table. But what I won't accept, politically, is anything based around this withdrawal agreement. Because frankly, even without the backstop, it leaves us basically trapped inside the European Union's Customs Union. And look, here's the point-- and this point does not get made enough-- that received wisdom from the research departments of JPMorgan, Goldman Sachs, and Deutsche Bank has been that Brexit would be terrible for the British economy. Truth of it is, actually, cutting free of the Customs Union, becoming competitive would be phenomenal. LARRY MCDONALD: And so much capital's already left. NIGEL FARAGE: But the opportunity here is amazing. The other big observation yesterday was, despite all the conciliatory talk that we got from Barnier and Juncker, Barnier did say at the end that, in the longer term, we will, post-Brexit, seek a trade relationship base with the United Kingdom, and it will be around the Customs Union. They do not want us breaking out of this. Because this is the chance, even if there are short-term bumps in the road-- this is the chance for the UK economy to start to become globally competitive, but much more competitive than its European neighbors. I see Brexit a bit like the 1979 moment, when you go from a very, very heavily state-run economy, which is what Britain had in the '70s, and you start freeing things up. LARRY MCDONALD: With some certainty? Once you give the markets, say, right, it's been four years of uncertainty-- NIGEL FARAGE: Yeah, political certainty and a clear direction of travel. LARRY MCDONALD: A fiscal plan. NIGEL FARAGE: Yep. LARRY MCDONALD: So this is what could happen over the next six months. You and Boris potentially could deliver certainty, a fiscal plan-- which I've heard is anywhere from $20 to $50 billion fiscal stimulus-- NIGEL FARAGE: Well, the important thing for us, given our geography-- next door to Europe-- given our economic interlinkage with Europe-- I feel that the Eurozone is going into some sort of slow gentle downward deflationary spiral. That's how it looks, how it feels. That's what negative rates and all these markers tell me. So it's really important for us, actually, not to be dragged down with it. And yes, stimulus is one of the things we can do, absolutely. LARRY MCDONALD: And your relationship with President Trump, that's-- that might be a nice card in the back pocket for Boris, because if you can do-- at the same time you do a fiscal plan, if you can do a trade deal with the US, what can you tell us about that in terms-- NIGEL FARAGE: Well, I think, clearly, there are-- all trade deals are contentious, and all trade deals can take a long time. And they generally take a long time because there are chapters of the negotiation that everyone gets stuck on-- agriculture nearly always being-- despite being a small part of the economy-- agriculture nearly always being the blocker. LARRY MCDONALD: Gets the headlines. NIGEL FARAGE: Yeah. And there is a big cultural difference. There are some big GM differences. There are some big meat-rearing differences between us and the US. But the cleverest plan I thought on this-- and he's gone now-- but it was John Bolton. John Bolton proposed a Swiss solution. So the Swiss negotiate trade deals with the EU, for example, on a sectoral basis-- 16 separate sectoral deals. And if we left on the 31st of October-- LARRY MCDONALD: That means sectoral based on industries? NIGEL FARAGE: Yes. Yes, absolutely. LARRY MCDONALD: So your automotive sector-- NIGEL FARAGE: Yeah, yeah, and the financial sector will accept that. LARRY MCDONALD: Each sector does a deal? NIGEL FARAGE: Yeah. And that was Bolton's idea, and a really positive way of doing them. Basically, if we did leave on the 31st of October-- I'm not sure we will, but if we did leave on the 31st of October, if we left clean on the 31st of October, with what's called a no deal, we could, by Christmas, have signed up with the USA some sectoral deals. Pretty obvious, isn't it? We're selling Jaguar motor cars and we buy Levi's jeans, or Harley-Davidsons. and LARRY MCDONALD: That accelerates the economic activity. NIGEL FARAGE: Absolutely. But here's the thing-- I do want an American audience, politically, to understand that, if the withdrawal agreement goes through, we will be stuck in a transition period, which means, effectively, nothing will change. And that transition period is due to last 15 months, but is extendable for a further two years. And we would not, during that transition period, be able to sign any trade deals with anybody. LARRY MCDONALD: Purgatory. NIGEL FARAGE: And this is why, to me, the clean break is the only way forward, because it leaves us free to get on and start to do things. And all right, there might be some short-term-- I mean, all change. Moving house brings difficulty, changing relationships brings even bigger difficulty. All change in life brings difficulty. But my fear is that Boris-- my political fear is that Boris gets this withdrawal agreement through Parliament with this amendment to the backstop, and then we're still stuck in limbo for years and years to come. LARRY MCDONALD: And what you're saying, essentially, is that, over the last three years, the risk reward of leaving has improved. In other words, your upside of leaving versus, say, an immediate hard Brexit, your risk has been somewhat reduced, and your upside's improved because of this potential-- either a fiscal stimulus and a trade deal. And counter to that, by staying, you're down-- the risk reward's gone worse. NIGEL FARAGE: I think it has. I do. And I think one of the problems here now-- one thing that is certain-- employment's at record levels. We're doing relatively well, compared to our European neighbors, economically. But investment is slowing to a standstill, and I think investment wants a political decision to get finally made and for us to move. And my fear with the withdrawal agreement is it would leave us stuck in that limbo for many more years to come. And that's why I am trying to say to Boris, look, you're going down the wrong direction. Go for the clean break. Work with me. We'll achieve it. And you know what, if with a clean break, the pound fell a few cents on day one and day two, just buy it. LARRY MCDONALD: A thesis that we have the Bear Traps Report, and I'm hearing more and more around the world from clients-- we've done so many years of central banks-- dealing with political uncertainty and more and more pressures on the central banks-- the Bank of England, the ECB, the Fed-- at the end of the day, a fiscal stimulus plan out of Europe-- the probability of that is rising from countries, like the Netherlands. Even Germany now is-- What do you think about central banks-- I've always wanted to ask you-- central banks and how much pressure's been on them? And are we coming to a point where, because of the populist movement and some of the things-- the engines that you've created, could we create an impetus for more fiscal policy coming from the Eurozone? NIGEL FARAGE: Well, is interesting, isn't it? Because the Bank of England, for example, in this country, when I was younger, did the bidding of the government-- simple as that. They were declared independent in the 1990s. But now, what we see right across the West-- particularly America-- is almost like political warfare going on between governments and central banks over who should do what. And it's a big question, isn't it? Should central banks act independently of government, or should central banks act effectively as an arm of elected government? LARRY MCDONALD: MMT, modern monetary theory-- NIGEL FARAGE: And it's a very interesting debate. Being the radical that I am, and believing that democracy, ultimately, should prevail, and that we should succeed or fail on our electoral judgments, I am minded to think that, actually, independent central banks have got a very limited future-- that this friction that now exists between governments of central banks can't go on. I don't see how you can have a president and the Fed at war with each other constantly. It's just not working. The difficulty, of course-- the downside of the argument, of course, is that a lot of decisions you make, in terms of fiscal policy or monetary policy, don't impact immediately. They impact and kick in 18 months, two years down the road. And that's the downside of it. But I do think that this separation of function of the two is coming under pressure. LARRY MCDONALD: Do the politicians respond with more fiscal-- in other words, fiscal spending deficits-- NIGEL FARAGE: Yeah, they will. Look, it's all they understand. And right at the moment, faced with an economic downturn, they feel-- LARRY MCDONALD: So we've had austerity and-- NIGEL FARAGE: I know. LARRY MCDONALD: --for years, with the Greeks-- even the UK, throughout Europe, we've had such austerity. NIGEL FARAGE: No, we're about to. And with interest rates where they are, and everything else-- LARRY MCDONALD: Yeah, that's the thing. You've got, essentially, free money to play with. NIGEL FARAGE: You might as well do what you can to stop a downward deflationary spiral. I just feel, in Europe, even doing that, I think some of the longer term problems are very, very serious. I think Germany's reliance on the motor car, as we head towards electric motor cars-- LARRY MCDONALD: Yeah, the German economy-- autos and auto parts-- NIGEL FARAGE: Yeah, massive-- and to be fair, they've been jolly good at it. But electric cars, what it's all about battery. LARRY MCDONALD: Some secular massive changes. NIGEL FARAGE: You've also got the driverless car, perhaps, not terribly far away-- the EU resisting driverless cars, by the way, as much as they can, for obvious reasons. And the cultural thing-- kids don't buy cars anymore. We used to buy cars, Larry. That's one of the things we wanted to do. But kids don't buy cars, and kids live a much more urban lifestyle than ever before. So there are some longer term cultural problems, I think, that Germany's got. And Italy, well, you just look Italian industry, Italian infrastructure-- it's not been invested in for a very, very long time. It just falls further and further behind its competition with every year that goes by. And France, still suffering from too much state in the economy, repressive labor laws. Whatever the ECB decides to do with stimulus, I don't think the outlook for the Eurozone is rosy at all. LARRY MCDONALD: So we get a Brexit-- a hard Brexit within six months and an election, they get-- NIGEL FARAGE: I don't know. I don't know. I'm saying to you there could be a so-called hard Brexit, but it's entirely in David Cameron's hands. He couldn't do it on his own. LARRY MCDONALD: Boris. NIGEL FARAGE: Sorry, I apologize. I'd say-- it's the week of Cameron's memoirs. I've got them on the brain. It's because of the nasty things he said about me. LARRY MCDONALD: What would you say, the land of the unemployed? NIGEL FARAGE: Yeah. Yeah. No, it's Boris's choice. And if Boris decides to do a deal with me, at some point we had an election to work together, we would get-- some call it hard Brexit. I call it clean Brexit. But I think longer term, it would give a certitude, and I believe, huge opportunity. LARRY MCDONALD: Well, it's been a pleasure to have you-- NIGEL FARAGE: Thank you. LARRY MCDONALD: -- to watch your career from almost 15, 20 years ago. You were alone in the European Parliament-- a lone man. NIGEL FARAGE: Very. LARRY MCDONALD: And now, there are thousands and thousands behind you, as I see you walk through the streets of London. It feels like every year, you just have a little bit more energy and more people that have taken-- NIGEL FARAGE: Yeah. What I've done has led to an outbreak of this disease right across Europe. It's called democracy. LARRY MCDONALD: Pleasure. NIGEL FARAGE: Thank you. LARRY MCDONALD: Good to see you, my friend.