This post will touch on a number of choppy waters in the world of politics coming ahead. First I will start overseas, then head to North America on the economy and then last but not least on the upcoming election.
With Boris Johnson proroguing parliament, its looking more and more like a no deal Brexit will happen. There is almost no chance the EU will agree to a better deal, so only possibility to stop Brexit is either a non-confidence vote next week or passing legislation to block it. Passing legislation with limited number of days will be tough but not impossible. If a non-confidence vote happens, the pro-remain side need to agree on a PM and that seems unlikely. Other possibility is have an election, but the government would need to fall next week otherwise Brexit will happen during the election. Either way expect chaos and a nation deeply divided. I believe the only way out is a second referendum and on that I think they should have a ranked ballot with three choices: Cancel Brexit and remain; leave with Chequer’s deal; leave with no deal and government would promise to accept the result. Since UK has already voted to leave, Brexit can only be cancelled through another vote and there is no guarantee remain side would win. In fact regardless of the results on second referendum, the country is likely to remain bitterly divided.
Moving eastward, Germany has had two quarters of negative growth meaning the Eurozone’s largest economy has already fallen into a recession so this along with Brexit is a sign that a recession in Europe is likely imminent. The good news for Canada is our economy is not too closely tied so it will have a minor negative impact but not nearly enough to throw us into recession. The other good news is it looks an election in Italy has been averted (although still not guaranteed) and far right populist leader Matteo Salvini won’t get his chance to become prime-minister. That is a good thing economically as besides his dangerous xenophobia, he would also be an economic disaster. He wants massive tax cuts without spending cuts which would almost certainly push the deficit well beyond the Eurozone limit and with Italy already having one of the highest debt to GDP ratios in the world, this could cause a crisis similar to Greece, only problem is Italy is much larger so would have strong ripple effects throughout Europe. If this were to happen, the EU may want to re-visit its rules about not being able to kick countries out of Euro (I don’t support kicking Italy out of the EU, but if Salvini’s plans are implemented, it would be in both Italy and Europe’s interest to have them leave the Euro and return to the Lira). Even in this case still bad news, but at least mitigates the impact on the rest of the Eurozone and Lira would be massively devalued so it would help Italy on their exports as well as increased tourism due to lower prices.
Recession coming in North America
The yield curve has inverted and in the past this has always meant a recession in the next 18 months. Also Trump’s trade wars with China are not helping and could contribute. The real worry here is with interest rates already low, Central banks have limited resources through monetary policy to stimulate the economy. For fiscal policy, the US deficit is already at $1 trillion so no room there either. In Canada, our deficit is more manageable federally, but provincially, most provinces do not have healthy debt to GDP ratios so a recession could cause serious issues in Ontario, Quebec, and Atlantic Canada and also be harmful in Alberta. BC is probably in better shape than most provinces to whether it on the fiscal front, but the high household prices could lead to a market crash leading to a bigger decline in GDP on the West Coast than elsewhere. Either way, we are overdue for a recession as this past June would have marked the longest we’ve gone post World War II without one. And this brings me to the federal election next. I am actually quite worried about the next recession as I have very little confidence in the majority in charge in both in the US, Canada, and some provinces so rather than having adults at the table who mitigate its worse impacts, I worry those involved will just pour gasoline on it and make it worse.
Upcoming Federal Election
The Election may have not been called quite yet, but certainly parties seem in campaign mode. And with pretty much every poll showing Trudeau, Scheer, and Singh all having negative approval ratings, I expect it to be nasty. Its not going to be so much about voting for who you want, but more about voting against who you don’t want to win. Trudeau’s approval rating has fallen enough that his best ticket to re-election is to scare both progressives and centrist voters the Tories are too extreme and dangerous. Likewise Scheer is not an attractive candidate either and much of his success will depend on convincing people Trudeau needs to go. In the past week, Liberals revved up attacks on Scheer on Gay marriage and abortion. While I think there is almost no chance it will get re-opened if Scheer forms government, his response has been not very good and a few more bad weeks like this could guarantee he remains in opposition and if bad enough maybe even cost him leadership of the Conservative party. The fact Scheer opposed gay marriage in 2005 is not a real issue as many people who support it today opposed it then such as Barack Obama, but his tepid response suggests his views haven’t changed and he only promises to not reverse it not out of conviction, but rather because he knows it would be political suicide. Likewise on abortion, he should have just said flat out, it will not be re-opened. I get the idea of free votes and I generally agree that on all issues except matters of confidence, votes should be whipped for cabinet, but free for backbenchers. And yes there is nothing to stop a candidate from introducing a private member’s bill and no I don’t think they should bar pro-life candidates from running or kick those out of caucus who vote against it. But most people have limited knowledge on how Westminster parliamentary system works so explaining it in detail unfortunately doesn’t work, so just best to shut it down. If one comes up, as long as it gets voted down people will forget about it by next election. And with all other parties voting unanimously against re-opening it and Tories 50/50, they would need at least 250 seats if not 300 to even have a remote change at passing it. So it won’t happen, but his handling questions his judgement and ability to think on his feet. Also distracts from the more serious issues we need to be debating. With the next PM likely having to see Canada through another recession as well as deal with the unpredictable president south of the border, those are the issues I want to here about. Mudslinging is great at riling up base, but I would rather not vote on who I fear least, but instead who I think will best handle the challenges ahead. I have already blogged why Trudeau needs to go and I swear over my grave, I will not vote Liberal. But Scheer hasn’t instilled a lot of confidence in me and if I do end up voting for him, I will probably be with my nose plugged. And if he does win, I could very well go back to the Liberals in 2023 if they learn from their defeat and choose someone more centrist. Otherwise like a lot of Canadians, I think we have lousy choices this election, that being said unlike Trudeau who we know a lot on, neither Scheer and Singh have been tested on the campaign trail, so one of them might surprise us pleasantly. Cannot vote for Singh due to ideological disagreements, but if Scheer does a much better job in the next 7 weeks I might feel better about him, but so far off to a weak start.