“The System Simply Isn’t Working” – Hugh Hendry Warns Of 1930s-Style “Dramatic Fulcrum Point” In Europe
We believe we are approaching a dramatic fulcrum point in public opinion in Europe which could deliver another bout of outsized positive returns from a unique Eclectica trade.
Since the Brexit referendum we have been developing our thoughts about what the Leave vote might mean, not just for the UK, but for the European project as a whole. And our main conclusion is that by doing the unthinkable and actually voting to leave, Brexit substantially increases the likelihood that other members of the European Union will also seek to break away. Remember, just two years after the UK similarly rejected the gold standard back in 1931 there were just 12 remaining members versus the 45 that had previously been committed. And the so far robust performance of the UK economy since the vote will do little to dissuade others from following suit.
So we have the precedent from a much earlier time (the 1930s) when the defection of just one member from a currency union caused the system to unwind rapidly. And we can clearly sense the seeds of another popular political revolt in other member countries; a flurry of upcoming elections and referendums provides an immediate catalyst.
First of all we have the still too close to call US presidential election where a Trump victory would be hailed as a triumph for the same arguments that led to Brexit. Closer to home there is the Italian referendum on constitutional reform set for the first week in December, where it looks increasingly likely the government will be defeated.
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