The Loss of the UK: The Cost

Here’s the first of the promised posts describing how the EU’s absorption of the UK would hit the US – later posts will cover:

The UK Today
If NAFTA Worked Like The EU
The UK After Absorption
Blair’s Kerry Touch
France & Germany’s Hollow Triumph
US Damage Limitation

Think of the absorption as analogous to what happens when a company you’ve done business with for years gets acquired. Familiar people and organizations disappear, long-standing policies change, the products you depend on get dropped, pricing changes and unwritten agreements are toast.

Here the acquiring entity is effectively Germany and France. They resent the US but are militarily and economically much weaker & so are building up China. After absorption, expect the UK to follow that plot. Not everything will happen on day one – the EU can’t yet afford an open conflict with the US, and has huge internal problems, and that will slow some things down.

Economic Hits

1. US investment in the UK will be shut off as Germany and France knock the UK off its perch as the number 1 investment destination in Europe. They’ll go for rapid regulation of harmful competition.

2. The UK will commit to dump the £ for the Euro, with big effects on the £/$ exchange rate.

3. US companies already invested in the UK will see employment costs and regulation converge on German and French models.

4. Expect the UK growth to head down to the EU average of 1% as controls are clamped on (e.g. 35 hour week) and resources extracted to fill the huge unfunded EU entitlement liabilities.

5. The big US financial institutions in London will be weakened by ‘financial services’ legislation.

Political Hits

1. The US to be left standing alone guarding emerging Iraqi democracy & democratizing Syria & Iran.

2. Expect the US to be marginalized at the UN, as the Brit Security Council vote is called by the EU.

3. EU support for China will now include UK military technology to China, notably jet engines.

4. Expect major instability across the EU as the UK’s millions of economic refugees from other EU nations find the UK’s shutters going up.

Military Hits

1. Expect early exit of UK forces from Iraq.

2. US forces in the UK will come under EU control, making them operationally worthless.

3. Loss of the “unsinkable aircraft carrier” means loss of European intel (drone and SigInt).

4. Longer term, prepare for the basing of Chinese assets in the UK.

5. The island of Diego Garcia may be denied. It’s a Brit Territory in the middle of the Indian Ocean which is run as a US bomber base. It’s very important for the defense of Taiwan, so China will want it closed, forcing long bomb runs from Missouri.

6. All US/UK Intel will immediately be compromised to the French and Germans. This includes GCHQ, MI5 and MI6 and ECHELON, the US-Australia-New Zealand-Canada-UK global network of computers that searches through emails. It will be checking this post when it goes out – Hi guys, keep up the good work!

7. Expect all UK/US defense programs, including the Joint Strike Fighter, to be mined for intel of use to China.

8. The Fylingdales component of the Ballistic Missile Defense System will not proceed.

8. Finally, absent the Brits, kiss NATO goodbye.

Before you head out to the nearest bar (mine’s a tall Sam), there’s one silver lining – expect several million skilled professionals to migrate to the US from Europe!

Country Economic Rankings

The latest (2003) statistics for Gross Domestic Product (GDP) show the UK as 4th largest. But if you adjust for something called Purchasing Power Parity (PPP), it slips to 7th. Which is right?

Pure GDP
1 United States 10,881,609
2 Japan 4,326,444
3 Germany 2,400,655
4 United Kingdom 1,794,858
5 France 1,747,973
6 Italy 1,465,895
7 China 1,409,852

GDP Adjusted for PPP
1 USA 10,871,095
2 China 6,435,838
3 Japan 3,582,515
4 India 3,096,239
5 Germany 2,279,134
6 France 1,632,119
7 United Kingdom 1,606,853

The PPP hack jumps China and India up and pushes the others down.

PPP attempts to adjust for the fact that exchange rates are often screwed. For example, here in Southern Europe, it’s cheaper for me to get books from Amazon.com than it is from Amazon.co.uk, because the Euro and £ are way too high. The PPP guys build on this by taking a standard basket of products and equating its local costs in different countries.

The problem is that different nations buy completely different stuff. The Chinese eat cute little cats, for goodness sake, how do you figure them into the shopping basket? And what about quality? I’ve had bad experiences with Chinese products. They look the same as Western stuff & cost less, but they break. Some Chinese stuff is fine, but you’d need to know exactly what was in the PPP basket to see if you were comparing like with like, and I can’t do that.

So in this blog I’m mostly going to stick with raw GDP, with the occasional nod toward PPP.