Most people don’t even know what a credit default swap is, which allowed the IMF to dress up a not particularly scary market development as some sort of ominous portent should British voters approve a Brexit. From Ambrose Evans-Pritchard at telegraph.co.uk:
IMF chief Christine Lagarde and Chancellor George Osborne are in cahoots
If the International Monetary Fund and its co-conspirators in the Treasury wish to deter undecided voters from flirting with Brexit, they have certainly failed in my case.
Having listened to their irritating lectures, I am more inclined to opt for defiance, for their mask of objectivity has fallen. There can no longer be any doubt that they are playing politics with the democratic self-determination of this country.
The Fund gives the game away in point 8 of its Article IV conclusion on the UK economy. It states that “the cost of insuring against a UK sovereign default has doubled (albeit from a low level)”. Any normal person who does not follow the derivatives markets would interpret this as a grim warning from global investors.
Yes, the price of credit default swaps on 5-year UK debt – the proxy we all use – has jumped from 17 to 37 since late last year. But the IMF neglected to mention that it has risen from 15 to 33 in Switzerland, from 26 to 43 in France, and from 45 to 65 in Korea.
The jump has almost nothing to do with Brexit, and the IMF knows this perfectly well. The French have an expression that will be familiar to the IMF’s Christine Lagarde: ils font feu de tout bois.
Her own IMF mentor and long-time chief economist, Olivier Blanchard, told me last month that there was no risk whatsoever of a sovereign bond crisis, or a Gilts strike, or a sudden stop of any kind. “Will financing be more difficult after Brexit? Will investors see the British government as more risky? I don’t think so,” he said.
Professor Blanchard, who recently stepped down from the Fund and is free to speak his mind, says there may be a price to pay for Brexit but it is impossible to calculate.
“The cost of exiting will not be seamless, and the uncertainty will last for a very long time afterwards. Firms deciding whether to locate a plant in the UK or in the Continent will wait. Investment will drop,” he said. But he also said weaker pound would cushion the effects of falling investment to some degree.
So bare this in mind when you comb through today’s Article IV statement with its delicious mix of precision and selective vagueness on the alleged damage of Brexit.
The hit ranges from 1.5pc to 9.5pc of GDP. Note the decimal points. The range depends on whether it is “a la Switzerland, a la Norway, or a la WTO,” said Madame Lagarde.
Perhaps it is churlish to point out that the IMF completely missed the onset of the global financial crisis, and was blindsided when the US fell into recession in November 2007. The Fund’s staff were still predicting sunlit uplands as far as the eye could see, even when the blackest of black storms was upon them.
To continue reading: IMF meddling on Brexit is scandalous skulduggery
