Scraped off the internet somewhere....
"No-deal Armageddon has finally struck. But thanks to our wise prime minister, who secured an extension till October, it didn?t strike in the UK. At least, not directly.
The EU-Swiss deal to allow financial market equivalence expired on Friday. As of this morning, it is a criminal offence for an EU-based trader to trade shares on the Swiss stockmarket. Ignore the rule and you could be imprisoned for up to three years.
This is a very big deal.
The European stockmarkets? biggest three companies are based in Switzerland. A third of Swiss stockmarket volume comes from outside its borders and 30% of trades in major Swiss blue-chip companies are placed in London. One EU based exchange alone will stop trading in 230 Swiss companies, including UBS and Novartis, today.
Stocks owned by fund managers, your pension and potentially your direct portfolio could be unsellable.
That?s why the Swiss stockmarket had a meltdown this morning.
?Wait a minute.
What do you mean, it went up 1.3%?
About in line with the rest of EU stocks?
And the Swiss exchange is set to close at a record high today if things hold up?
Yikes. It turns out no-deal really is better than a bad deal? or perhaps people just don?t care.
But let?s ignore reality and continue to pretend that no-deal is a cliff edge crashing out crisis disaster. After all, the UK?s economic and financial market meltdown since 2016 proves what happens when you try and leave the EU. So, as an EU official told the Financial Times, ?It could take weeks or months for the dust to settle? from the Swiss stockmarket crash this morning.
Why did Switzerland decide to break away from the EU?s stockmarkets? Why continue to ruin their disastrously non-EU economy by leaving the EU?s financial markets too?
Why not accept a foreign parliament?s ability to make Swiss law? Why risk Switzerland?s higher wages and living standards by staying out of the EU?
Actually, it wasn?t the Swiss who pushed through a no-deal Swiss-stockmarket-exit from the EU. The EU?s deal with Switzerland on stocks simply expired and the EU decided not to renew it.
So why would the EU deliberately trigger plunges in Switzerland?s stockmarkets this morning? (Remember, we?re pretending there?s chaos, like on Brexit. If you say it often enough?)
The reason for the EU?s anti-trade, protectionist and isolationist behaviour is familiar.
Back in the day, the EU told UK Brexit negotiators they couldn?t cherry pick. There would be no isolated case by case deals on issues such as flights, financial markets and medicines. There had to be one big all-encompassing deal. And nothing was agreed until everything was agreed. Except for the divorce payment, of course. That had to be agreed in advance.
The UK negotiators would?ve been a little mystified by all this at the time. The cherry-picked deals on those issues had already been done, after all. Planes would fly, financial markets trade and medicines move across borders thanks to bilateral agreements?
The other issue was that the Swiss had been operating under a cherry-picking arrangement for quite some time? In fact, they?d cherry picked about 120 bilateral treaties with the EU. That?s a lot of cherries.
But the Financial Times quoted ?a diplomat? who said, ?We?re not going to treat the Brits any worse than Switzerland.? Which necessitates treating Switzerland sufficiently badly too, if you want to punish Britain.
That?s what triggered the EU?s decision to let the EU-Swiss stockmarket equivalence end. They wanted the Swiss to do a megadeal with the EU, just like the UK should. The ?nothing is agreed until everything is agreed? sort of thing. Converting those 120 cherries into one big pie.
Letting those case-by-case agreements expire creates pressure to do a megadeal. It turns EU-Swiss relations into an all or nothing situation. The sort of bullying that the EU is designed to make possible by becoming big enough.
And so that?s how the EU decided to up the pressure on Switzerland to agree to the megadeal ? by letting the stockmarket equivalence deal expire.
But the Swiss don?t like getting bullied. And the Swiss political class don?t feel the same need to obey the EU. Perhaps they?re less desperate for a career at the EU level after their national-level run comes to an end.
Instead, the Swiss politicians listened to their population?s views about the dodgy EU megadeal, with a six-month consultation on the issues. The people didn?t like the deal, and raised a series of questions. So the Swiss politicians went back to the EU with those questions.
The EU doesn?t like questions. Especially not about the nature of its power structures, its undemocratic lawmaking capacity, and the odd workings of the judiciary. So the EU Commission president simply declared the Swiss questions were just a delay tactic. Allowing stockmarket equivalence to expire should prod the Swiss in the right direction?
The Financial Times has the EU Commission spokesperson quote:
?At this stage we have no indication about any intention of our Swiss partners to make further progress [on the megadeal] and hence there is no justification to extend the current equivalence decision beyond 30 June.?
But the Swiss did what they always do when Europe behaves like this. They just shrugged and walked away, ignoring warnings about financial and economic chaos. Precisely what the UK negotiators proved incapable of.
The Swiss even retaliated, Donald Trump style. They banned trading Swiss shares in the EU to ?protect its domestic financial market?. I?m not sure how the EU and Swiss both banning trading in Swiss shares in the EU is retaliation, but at least it?s consistent.
The Swiss made their provisions for this eventuality last year, by the way. The legislation is through. No-deal has been the default option for months. Compare that to the UK government?s preparations, where huge amounts of legislation are still needed in the run up to a no-deal.
What are the longer term impacts of the Swiss-EU stockmarket divorce? Well, the ability to trade the same stock in multiple locations created competition. That kept costs low for investors. Which may reverse now. The Swiss financial industry is pleased.
But the Swiss are also worried that stocks are only the beginning of a breakdown in EU relations. The economy could be in for more disasters like today?s stockmarket rally? sorry, crash. 119 cherries to go.
If the Swiss continue along their merry way, all this may encourage no-dealers in the UK. As Bloomberg pointed out, ?the EU used Switzerland?s stock market as a bargaining chip?. Apparently this doesn?t work very well in the end. The bluff was called. How embarrassing.
Scott Evans, a researcher at London Business School, said ?This also sends a very clear message to the U.K. regarding equivalence in the post Brexit period ? which so far has been viewed by the Brexiteers and the current U.K. government as a given.?
The message is loud and clear. Bring on no-deal!"