This week we celebrate the 88th anniversary of the recording of West End Blues by Louis Armstrong and His Hot Five who blew, drummed and scatted with perfection on June 28, 1928. One music critic called it “the greatest record ever made during the 20th century.” In a week filled with hyperbole every bit as hyper as that statement and bursting with legions singing the blues over recent events in the UK and elsewhere*, we celebrate by looking at the compounding ironies of the Brexit vote, peek at another underreported change in our global order and determine whether the US or China is more popular around the world. It’s this week’s International Need to Know, an opening cadenza followed by bars and measures of international knowledge delivered to you each and every week.
Without further ado, here’s what you need to know.
A Towering Inferno of Irony
There has been much reaction to the Brexit vote last week, including some overreaction. We were surprised by the result having speculated in this very spot two weeks ago that the election might be similar to Scotland’s recent independence vote: lots of talk but in the end people deciding to stay. We are not surprised by overreaction to the event. Markets don’t like surprise and love to chew the scenery like an overwrought William Shatner scene. Brexit, if it ultimately happens, is likely a net negative for the UK, but for the world as a whole it is not a catastrophe unless, as we also worried about two weeks ago, it leads to further exits. Brexit at the least is a wonderful portal into a world towering in contradictions built upon beams and rebar of irony.
- The British Pound took a pounding right after the vote which raised alarms and tremendous concern around the world. But a traditional remedy for economic difficulties is to devalue your currency, making it easier to export and create jobs in the exporting industries. Ironically, the inability of distressed members to devalue has been a major flaw of the EU. In a rational world, countries such as Greece, Portugal and Italy would have seen their currencies devalued after they went into economic crisis seven years ago, allowing them to rebalance their economies by making it easier to export. Maybe the British were smart to leave a consortium with such flaws, right? Except, of course, that the UK while part of the EU, is not part of the Euro currency zone.
- Anti-EU groups in the Netherlands, France, Austria and Italy are licking their chops at the opportunity to hold similar exit elections in their countries. Two weeks ago we speculated at such possibilities and it is by far the biggest worry of the Brexit result. And yet, upon reflection, Brexit could end up making such further exits less likely if things continue to go badly in the UK as a result of the election. If the UK economy is indeed badly affected and if Scotland separates and Northern Ireland unites with Ireland (additional ironies for the irony pudding that is Brexit), won’t other countries be scared off from taking similar exit actions? Perhaps the best thing that can happen for the EU staying together is for the UK to head into catastrophe. Come on, Brits, we must all make our sacrifices for the good of the world.
- And yet, the EU is badly in need of reform. It cannot succeed as a currency union without instituting a fiscal union. It is also not particularly democratic which leads to our last irony (at least of those that can fit in this space). We must hope the overabundance of direct democracy–a majority referendum taking place on a complicated question of remaining or leaving the EU may not have been the best idea–will lead to democratic reforms of the EU. Perhaps it will take too much democracy harming the UK to bring better democracy to the EU, or at least what’s left of it.
A New Development Bank Sherriff
It would be easy to forget amongst all the hub and bub of crazy world activities that China’s President Xi Jinping announced two years ago that China was establishing an Asia Infrastructure Investment Bank (AIIB), no longer satisfied at playing second (third? fourth?) fiddle at the World Bank and other such institutions. Last Friday, the AIIB approved its first investments, totaling $509 million in four projects. Rather than competing with existing development banks, however, it is cooperating with them. Three of the four projects are co-financed with the World Bank, the Asian Development Bank, the United Kingdom Department for International Development and the European Bank for Reconstruction and Development. The projects are power grid upgrades in Bangladesh, slum renovation in Indonesia and highway construction in Pakistan and Tajikistan. AIIB has 57 founding member countries and $100 billion in committed capital. AIIB plans to invest $1.2 billion this year. The way the world is organized changed a lot this week, in ways both noticed and not.
A Popularity Contest
Every country has its good points and attributes that we may wish were different. This is true even of the two largest economies in the world, China and the United States. However, amongstcountries polled by the Pew Center, the US would receive many more invites to the prom. Other than some strange grudge Greece has against America (maybe they mistakenly think Angela Merkel is president), the US has much stronger favorability numbers than China. Unsurprisingly, China is least popular in Japan. There is an age gap in views of China with younger people far more likely to have a favorable view of China than oldsters. This is especially true in the US, Canada, France, the Netherlands, Poland, Spain and the UK. Pew notes that in Spain, for example, “42% of Spanish respondents ages 18 to 34 give China positive marks, compared with 32% of people ages 35 to 49 and just 17% of those 50 and older.” To bring this full circle, we saw this same age gap in the Brexit vote, where young people voted overwhelmingly to remain in the EU. The world will be very different decades from now when the over 50 set is gone. But already the young see a different world than their elders do.
*Istanbul is one of our favorite cities, full of wonderful sights, food and people. We send our condolences and best wishes after the latest terror attack there and hope for better times and political reforms in that now troubled country.