Financial Times Europe - 31.07.2019

(Axel Boer) #1
8 ★ FINANCIAL TIMES Wednesday31 July 2019

Varadkar on the
horns of a dilemma
Wolfgang Münchau’s column “The EU
should prepare for a no-deal Brexit”
(July 29) is entirely right, apart from
its headline, which should have ended
“unless it drops the Irish backstop”.
Taoiseach Leo Varadkar in particular
must think about whether Ireland
would be better off with the risk of a
hard border at the end of the transition
period or with the certainty of a hard
border three months from now.
Before he thinks, he should
download and viewThe Dirty Dozen.
Boris Johnson has deliberately
assembled a cabinet that would be mad
enough to implement a no-deal Brexit.
Adrian Wood
Rottingdean, E Sussex, UK
Emeritus Professor of International
Development, University of Oxford

At least the useful idiots

present an alternative
Wolfgang Münchau is incorrect to say
that Theresa May’s withdrawal
agreement was rejected because of the
campaign for a second referendum
(“ The EU should prepare for a no-deal
Brexit”, July 29). It was simply a
question of parliamentary arithmetic.
Some MPs rejected the proposed deal
because it would not deliver on the
Leave campaign’s promise that leaving
the EU would be an easy matter which
would leave the country better off, and
certainly no worse off, than under our
current membership.
Others (notably members of the
European Research Group) voted
against it because it was not a “pure”
enough Brexit for their taste, which
will not be satisfied unless we leave
with no deal at all (a no-deal Brexit is
in fact a misnomer because in that
scenario we will have to negotiate
anyway as soon as we leave, from a
much weaker position).
The country is now hurtling towards
a no-deal Brexit for which there is no
mandate. At least the “useful idiots”
still campaigning for a second
referendum are presenting an
alternative to the false narrative that
this is “the will of the people”.
Karen Griffith
London N7, UK

Outside option principle

as applied to no deal
The peculiar belief by some Brexit
supporters that a threat to leave the EU
without a deal would strengthen the
UK’s bargaining position appears to
ignore the well-established outside
option principle in game theory. This
principle holds that, when a threat
made during a bargaining process is
not credible, it should simply be
ignored by the other party.
If I were in the process of negotiating
a higher salary from my university and

would threaten to quit and accept the
offer of a lower salary from a lower-
rate institution, my employer could
safely ignore the threat because it is not
a credible outside option. Similarly, the
notion that after a no-deal Brexit the
UK would be in a stronger negotiating
position is unfounded, because the UK
would be desperate to strike a deal and
would have very little bargaining
power, with the EU or with anybody
There is an exception to the above
rule, however, and this is when a party
is perceived as being completely
irrational. AsThomas Schelling rgued,a
if I am tied to someone else at the edge
of a cliff and the other person starts
jumping up and down, I should
promptly concede in order to avoid the
risk that we both fall to our deaths.
Again, this ignores the fact that the
losses to the UK would be vastly larger
than for the EU: a no-deal Brexit would
be unlikely to lead to the demise of the
Pasquale Scaramozzino
Professor of Economics,
School of Finance and Management,
Soas, University of London, UK

It’s not so difficult

to categorise Boris
Frank Luntz, in his appraisal of Boris
Johnson, states that he “is singularly
the most difficult politician to
categorise: there really is no one like
him on either side of the Atlantic”
(“ The optimistic Johnson is a Reagan,
not a Trump”, July 29). Given that Mr
Johnson read Classics at Oxford, a more
suitable categorisation would surely be
Machiavellian rather than Reaganite.
David Wenham
Dartford, Kent, UK

If Frank Luntz really can’t tell the
difference between eloquence and
cynical sophistry, or between optimism
and childish narcissism, I wonder
about his ability to interpret the results
of his 30 years of focus groups.
John Wormald
Chichester, W Sussex, UK

Profit is not guaranteed

for private equity funds
Jonathan Ford, in his enthusiastic
response to Senator Elizabeth Warren’s
plans for the private equity industry,
seems to labour under a
misapprehension about how private
equity actually works (“Warren is right
to worry about dangers of private
equity looting”, Inside Business, July
In order for a private equity
investment to be successful, the
investee business has to be in better
shape when it is sold than when it was
acquired. There are many levers to
make this happen — launching new
products, expanding into new markets,
creating jobs, for example — but if they

don’t work, and sometimes they don’t,
the private equity fund will not make a
profit. And even if an investment has
been successful there is still no
guarantee that the fund will see any of
those returns — that only happens once
investors in that fund have received
their cash return and only then if it
surpasses the hurdle rate (typically 8
per cent).
Private equity has an exceptional
record in supporting and growing
businesses across the UK and the US. A
more sober analysis would appreciate
Tim Hames
British Private Equity & Venture Capital
London WC2, UK

Beware selective outrage

over human rights
When I taught international human
rights law, I used to alert my students
to the common phenomenon of
selective outrage at human rights
violations, because this may mask a
further level of human rights violation.
Clare Short (Letters, July 24) defends
the Boycott, Divestment and Sanctions
(BDS) movement against Israel as
being motivated by “Israel’s cruelty to
the Palestinians and grave breaches of
international law” rather than by anti-
Semitism. But the question still arises
why supporters of BDS confine
themselves to Israel and do not extend
their outrage to the several regimes
currently perpetrating great cruelty
and committing grave breaches of
international law.
Of course, it is reasonable for human
rights activists to focus their energies
where they can be most effective.
Nevertheless, when outrage is exactly
confined to the setting where the actors
are Jews, surely it is reasonable to
suspect anti-Semitism.
Prof Michael Singer
The Dickson Poon School of Law,
King’s College London, UK

Nobody does nostalgia, geekiness and
the worship of manufactured gadgetry
quite like Japan. But even by those
standards, installing ahuge statue of a
yellow Sony Walkman in the heart of
Tokyo’s Ginza district is a triumph.
Its presence — pitched somewhere
between trumpet-tooting jubilance
and sombre consecration — marks the
40th anniversary ofSony’s
revolutionary music player. An
accompanying exhibition, curated
with sniper-like accuracy to appeal to
tech-sentimentalists like me, tracks
the Walkman’s many iterations
through the 1980s and ’90s as it
transformed the way the world
thought about gadgets, music and
Japanese industry.
The displays and their poetic
legends are exquisitely evocative of an
era before cassettes and mini-discs
faded into obsolescence. They
transport anyone above a certain age
back to that first moment of sliding
lightweight stereo headphones on to
one’s head and suddenly gaining the
power to soundtrack everyday life.
The whole thing, starting with that
Walkman statue, is lovely but
pernicious. For many reasons, Sony —
and Japan in general — has a right to
celebrate the Walkman and the 400m
devices sold under that ame.n
When it first appeared in 1979, it
wasn’t just a new gizmo, but an
impudent encashment of two big
ideas: that electronic entertainment
could be portable and personalised
and that Japan’s reputation for
relentless manufacturing refinement

would define global consumer
At the time of the Walkman’s birth,
industrialists already knew that
Japanese cars, components, chemicals
and speciality steels (to name a small
selection of its manufactured goods)
were shaping up to be formidable
competitors in the global market. The
Walkman, handily clipped over the
waistband and marketed as a thrilling
bite of the future, helped the general
public grasp that fact.
But there is a problem with all the
Walkman-worship. Nostalgia is a
deadweight anywhere, but the burden
is especially onerous in asociety that
is ageing s quickly as Japan’s, whosea
demographics suggest rather too
convincingly that its days of
disruptive verve are in the past.
The problem is that for both
Japanese and outsiders, the Walkman
represents theperfect encapsulation
of a bygone halcyon era. It is a eadilyr
accessible metaphor for both Japanese
industry’s greatest qualities, and for
the various aspects of its competitive
decline. Despite the product’s palpable
absence from daily life in 2019, the
Walkman statue sits there anchoring
two views about Japan, which the
40th anniversary has only
The first of these — and one that a
particular type of investor repeats as a
mantra — is the idea that the
Walkman tells you all you need to
know about Japan’s shortcomings. The
brand’s reign, as the exhibition
painfully reminds us, ended with the

arrival of the iPod, digital music
players, and the many brutal
questions they raised. Why was Japan
suddenly losing a technology battle?
Why had it misread the market? And
why was Sony — after all that
painstaking overseas mergers and
acquisition work to turn itself into a
music company — suddenly watching
Apple eat its lunch? The general
theory here works on the flawed
principle that if something is true for a
product as iconic as the Walkman, it
must be true for the rest of corporate
The second, no less flawed, view is
that the Walkman is a kind of
magnetic north in the quest for Japan’s
lost pre-eminence — evidence that the
nation, having once cracked the secret
of global success in technology, would
be bound to crack it again.
Seen through this prism, the issue is
not that the nature of technology and
the treasure chests of hardware
manufacturing have fundamentally
moved, but that Japan’s engineers just
need to keep toiling away until they
hit upon another classic.
Both of these interpretations remain
seductive even though, with the most
gentle of prodding, they quickly fall
apart. The Walkman’s 40th birthday
marks the perfect moment to refute
them once and for all — and to declare
this remarkable machine’s irrelevance
as a means of understanding either
the future of tech engineering or the
world’s third-biggest economy.

Japan’s reverence

for the Sony

Walkman is

a deadweight



by Leo Lewis

I voted to leave, as I had issues with the
governance of the EU as an institution,
and its general move to a political
unification. I did not vote to break all
reasonable relationships with Europe.
Brexit is now being hijacked by
idealists. Like all idealisms it is moving
into extremism. Today we are told that
we voted for a no-deal Brexit. It was
quite the opposite; I was led into

believing that exiting would not
adversely affect our trading
relationships with Europe. Soon, if you
don’t believe in a hard Brexit, you will
be branded a traitor. Brexiters forget
that 48 per cent of the people voted to
remain. Imagine their angst as we are
not only leaving Europe, but clearly
heading to be an enemy of Europe,
reneging on our commitments.

How did all this hate against Europe
come to pass? I certainly did not vote
for that. If Brexit is this extremist,
please can I have my vote back? The
creation of the EU was a fabulous
project and worthy of our support,
even if we do not want to be politically
locked into it.
Ali Athar
London SW1, UK

How did all this hate for Europe come to pass?



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‘It’s a nice little neighbourhood —
Donald Trump never comes here’

The London Stock Exchange may be
days away from doubling in size via the
acquisition of Refinitiv, the data spin-
off from Thomson Reuters. Over the
weekend the LSE confirmed a Finan-
cial Times report that the two groups
are in advanced talks.
If a deal comes to fruition, it would
seal yet another permutation of the
potential combinations that trading
platforms have explored in recent
years. But alongside the microcosmic
rejigging of market structures, the
LSE’s chosen way forward — under the
leadership of American chief executive
David Schwimmer and American
chairman Don Robert — may also sign-
post the future of the City of London.
The $27bn purchase would turbo-
charge the LSE’s move away from its
original core business of facilitating the
trading of shares. That cash equities
business has become increasingly low
margin, amid stiffer competition, tech-
nology advances and a deepening trend
for companies to be owned privately
rather via stock exchange listings.
Buying Refinitiv consolidates the
LSE’s shift into data services begun
under previous chief executive Xavier
Rolet. It also further broadens the LSE’s
asset class profile across fixed-income
and interest rate products and services.
Most symbolically, it strengthens the
group’s standing in other parts of the
world, particularly North America and
Asia. If Boris Johnson were looking for a
touchstone for global Britain, the new
prime minister could scarcely have
found a better one.
It is all a radical change of direction
from two years ago, when a merger
between the LSE and Frankfurt-based
Deutsche Börse was on the cards.
The then chief executives of the two
exchange groups had conceived that
deal before the UK’s 2016 Brexit refer-
endum, but bravely continued to push
it even after the vote. They spun a valid

line that even if political ties were to be
cut, a combined exchanges business
could act as a valuable economic
bridge, maximising continental
Europe’s access to capital.
But in the spring of 2017 the putative
deal was blocked by the European
Commission, nominally on antitrust
grounds. Concerns expressed about
likely market dominance in derivatives
may have been a convenient excuse to
scotch a deal made unacceptable by the
politics of Brexit.
Regardless of the merits of that
merger — or the corporate fallout of it
having been blocked — Europe’s capital
markets may have suffered more. Eas-
ier access to the City of London’s capital
could have brought substance to the
rhetoric of the EU’s proposed capital
markets union, Brexit notwithstand-
ing. Without the deal, and without evi-
dence of alternative impetus, CMU
risks being a white elephant.
For the City, the darkening cloud of a
no-deal Brexit causes logical concern
among financiers. It could severely dis-
rupt the ability of UK-based banks,
insurers and asset managers to service
clients across the EU — business that is
estimated to account for about a fifth of
the City’s overall revenue.
Thanks to far-sighted thinking by
managers, and resolute direction from
the Bank of England, the City is proba-
bly as well prepared as it could be for a
hard Brexit, having established bridge-
heads across the continent that should
allow business to be continued, albeit
less efficiently and at a higher cost.
But Brexiters have long urged busi-
nesspeople to focus less on the disrup-
tion of leaving the EU and more on the
opportunity to boost business with the
rest of the world. For 300-plus years
the London Stock Exchange has been a
key cog in the City of London machine.
The City should indeed take note of its
outward-looking reinvention.

Plan to buy Refinitiv is logical and instructive for the Square Mile

London Stock Exchange

deal is signpost for City

The protests on the streets ofHong
Kong ave now been going for almosth
two months. Rather than dying down,
as the authorities had hoped, they are
intensifying. The number of demon-
strations, the violence on the fringes of
the marches and the demands of the
protesters are all escalating.
The stand-off raises questions about
the future of one of the world’s great
business cities — and about the author-
ity of the Chinese government to exer-
cise sovereignty in Hong Kong, under
“one country, two systems”.
Neither the authorities in Hong Kong
nor in Beijing seem to have a workable
plan to bringthe situation under con-
trol. The protesters’ original grievance
concerned a proposal to allow the
extradition of criminal suspects from
Hong Kong to mainland China. Faced
with demonstrations of up to 2m peo-
ple (more than 25 per cent of the terri-
tory’s population), the Hong Kong gov-
ernment withdrew the bill.
The failure to take the proposal off
the table completely stoked the protest
movement — which has added extra
demands to its agenda, including a
commission of inquiry into police vio-
lence and the use of universal suffrage
for all elections. Demonstrations over
the weekend in Yuen Long andCentral
turned into running battles between
police and protesters.
There are nowopen debates in main-
land mediaabout deploying the mili-
tary to restore order. Quite aside from
the moral issues involved, the use of
the People’s Liberation Army in Hong
Kong would be a massive error by
Beijing. The fact that millions of Hong
Kong’s inhabitants have demonstrated
in favour of preserving the territory’s
autonomy from the mainland under-
lines the long-term resistance that
China would face if it attempted to
impose military rule in Hong Kong.
The restoration of law and order

should be left to the Hong Kong
authorities, which have announced
they will prosecute demonstrators for
rioting. They must also show determi-
nation to pursue themysterious white-
shirted thugswho attacked pro-
democracy demonstrators a week ago.
T h e t h u g s m u s t b e f o u n d a n d
prosecuted and the government must
be seen to be even-handed.
The government should also concede
to demands for an inquiry into the pro-
tests. That inquiry should be as broad-
based as possible. It must look not just
at the actions of police and protesters,
but also at the broader causes of Hong
Kong’s discontent. There is not much
doubt that economic and social prob-
lems fuel the protests — including the
extraordinary cost of housing in Hong
Kong, which hasvastly outstripped sal-
aries. The authorities can address these
economic concerns by releasing more
land for development.
Dealing with the political grievances
will be much harder. It would be an
excellent idea to elect Hong Kong’s
chief executive by universal suffrage. It
is hard to see the Chinese government
agreeing to any such thing, given the
forces that might be unleashed.
The lack of true democracy in Hong
Kong means that Chinese rule there
will always have a legitimacy problem,
which may ultimately be insoluble. But
there are other political adjustments
the Chinese government could and
should try. One reason why political
unrest has been mounting has been the
increasingly heavy-handed interven-
tion by Beijing in Hong Kong, including
the banning of elected legislators and
the kidnapping of booksellers.
It should now be clear to the Chinese
government that such actions have
backfired badly. In its own interests, it
is time for Beijing to reaffirm its com-
mitment to “one country, two systems”
— not just in word, but in deed.

Reaffirm ‘one country, two systems’ not just in word, but in deed

How Beijing should

handle Hong Kong

Moving steadily towards
an impeachment inquiry
Paul Bloustein (Letters, July 29) asserts
confusingly that Robert Mueller,
former special counsel, “found no
conspiracy between the Trump
campaign and Russia to collude in the
effort”. He further asserts,
problematically, that the Democrats
failed to elicit from him “a clear and
decisive determination of high crimes
and misdemeanours”.
Actually the Mueller report
documented 140 individual cases of
collusion with Russian agents by
Trump campaign associates, but was
not able to prove a centralised,
conspiratorial co-ordination of them.
Mr Mueller was not able to prove
conspiracy in part because, as he
stated, the White House stonewalled in
providing documentation. And of
course he did not press the matter by
forcing President Donald Trump’s oral
testimony; although he had claimed a
concern about the shortness of time as
an excuse, he in fact had no time limit
imposed on his investigation.
In Watergate, Congress was able to
get a quick decision from the courts to
force the release of the Nixon tapes
(four months, in fact). They likely
would move equally expeditiously to
force Mr Trump to give sworn oral
Mr Mueller’s claim, moreover, that
collusion is not a legal term, and
therefore not chargeable, is open to
question. When Mr Trump recently
asserted that he’d take “dirt” on an
opponent provided by a foreign power,
which is of course collusion, a hue and
cry went up denouncing his remark as
morally bankruptandillegal. Mr
Mueller has proved a reluctant witness
and an overly cautious investigator, as
attorney-general William Barr has
rightly suggested, not because he is a
“Victorian” in a postmodern age but
more likely because he is a “chain of
command” guy, as he has been called,
intrinsically prone to deference.
Although the Mueller testimony
lacked the anticipated theatricality
Democrats had hoped for,
Representatives questioning him were
well prepared for desultory replies and
nevertheless elicited clear statements
from him of the illegality of some of Mr
Trump’s acts. Your correspondent Mr
Bloustein admits of the “evidence
[Mueller] did adduce on obstruction of
justice”, but sees this only as a quaint
piece of information that “voters may
take into account next year”. Sorry, but
obstruction is an impeachable offence,
and Democrats appear to be moving
steadily if incrementally towards a
formal impeachment inquiry.
It is still an open question whether
they will have accumulated a
satisfactory amount of evidence to vote
articles of impeachment this year that
will be convincing to the public. Next
year for sure, if Mr Trump manages in
the face of all this to get re-elected.
Recall that Richard Nixon and Bill
Clinton were impeached in their
second terms, following more decisive
electoral victories than Mr Trump is
likely to garner.
Albion M Urdank
Los Angeles, CA, US

JULY 31 2019 Section:Features Time: 30/7/2019- 18:53 User:alistair.hayes Page Name:LEADER USA, Part,Page,Edition:USA, 8, 1






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