Geopolitics

Why Brexit May Not Be So Bad After All

Big Ben from the other side
Big Ben from the other side
Clive Crook

As British Prime Minister Theresa May starts the clock on Britain's departure from the European Union, there's no real question that the divorce is going to hurt both parties — and Britain, to be sure, much more than the EU. But this isn't to say there's no upside. The right kind of deal will recognize these opportunities and try to make the most of them.

This whole misadventure began with historic errors of judgment — former Prime Minister David Cameron's decision to call a referendum on U.K. membership, and Europe's decision to deny him significant concessions in the talks that followed. Further miscalculations over the coming months are likely and could easily make a bad situation worse. But a friendly parting is still possible, and in both sides' best interests.

The main argument against this view is that the EU should rationally want to punish Britain for its choice, to deter other countries from following its lead. Too much is made of this.

Even the friendliest split, one that kept Britain's trading privileges mostly intact, would leave Britain at an economic disadvantage. Unavoidable disruption means that jobs would still be lost, and not just in the City. The fall in sterling since the referendum has already cut the purchasing power of U.K. incomes. Also, Britain is quitting partly to regain control of its borders — yet immigration, in economic terms, is a good thing, not a bad thing. Tighter restrictions on flows of labor are a punishment in themselves, no less so for being self-inflicted.

Europe's leaders do need to deal with mounting anti-EU sentiment, but taking a punitive line with Britain isn't the best way. Europe's citizens have legitimate complaints about the union. Telling them, in effect, to shut up or else might suppress some of those complaints for now, but won't provide a sound democratic foundation for the constitutional changes that Europe needs. An EU that better serves its citizens is the right way to build stronger support for the union.

Such initiatives now enjoy little support, but they are no less necessary.

Britain, bear in mind, was always an outlier, fundamentally opposed, as other member nations are not, to the EU's core principle of ever closer union. And having retained its own currency, it was already half-out. Those differences cut against the idea that if Britain now escapes with only slight wounds, further exits of similarly inclined nations will quickly follow. Despite the recent discontent, no other EU members are similarly inclined. A far greater danger of other exits would arise in the longer term from the EU's failure to repair itself.

That brings us to the upside of Brexit from the EU point of view. One of the clearest lessons of the past ten years is that fixing the euro zone will require a further measured dose of economic-policy integration. The union's banking and capital markets need to be fully merged. A limited form of fiscal union is needed as well, involving jointly issued bonds and intra-union fiscal transfers.

Granted, such initiatives now enjoy little support, but they are no less necessary, and they can't be postponed indefinitely. In due course, they'll require treaty changes and, in turn, the unanimous backing of member states. Even without Britain and its bred-in-the-bone reservations about the European project, securing this backing won't be easy — but at least it won't be impossible.

There's an upside for Britain as well. It can regain some of the power of self-government it has lost as part of the EU. Perplexing as this may be to elite opinion, that's worth something to much of the country. It will come no doubt at some economic cost, but this cost can be reduced both by seeking the closest and most cooperative partnership with its EU neighbor, and by using exit to liberalize its economy and its other trade relations further and faster than it could as a member. Again, this won't be easy. Again, at least it won't be impossible.

The coming negotiations will be fraught. They could fail before the substance of the talks even begins — over Europe's demand for monies owed, over the status of EU migrants, over mere process (such as whether exit terms should be discussed in parallel with transitional trade arrangements). The point is to understand that the die is now cast, that further recrimination over how this came about serves no purpose, and that the best bet for both sides is to make the most of it.

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Economy

Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.


Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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