Brexit: It’s Happening… Sometime Soon

Caitlin McLaren - 3T Chemical
Posted on: July 3, 2016

The votes have been cast, and British citizens have elected to leave the European Union by the narrowest of margins. The overall result was 52% for “Leave” and 48% for “Remain”. England and Wales leaned in the “Leave” direction, while Scotland and Northern Ireland preferred to remain. The results of the referendum, which was an election promise of current Conservative Prime Minister David Cameron, will be binding. Accordingly, Britain will invoke Article 50 of the Lisbon Treaty, which provides for member states to leave the European Union. It will be a slow process, and the UK and the EU will have to work out what, exactly, their new relationship will look like.

The actual exit of the UK from the European Union will not take place for some time. David Cameron has resigned following the vote, and will be succeeded as Conservative leader on September 9th; the task will be left to the new Prime Minister. After Cameron’s successor begins the process, it will take a minimum of two years and a great deal of negotiation before Britain actually separates, with many pro-EU politicians vowing that they will work to keep Britain and the EU as closely allied as possible under the circumstances, especially in matters of trade.

The Vote

The close results highlighted many political and demographic divisions in the country. Notably, younger voters were mainly swayed by the European Union’s wider economic opportunity. 70% of voters aged 24 and younger voted to remain in the EU. The scale was tipped by older voters, leading many Remain supporters to argue that older voters sold the younger generation’s economic future for ideological reasons. Meanwhile, Scottish voters were very upset by the results, especially because of Scotland’s own recent independence referendum. Indeed, one of the major arguments against Scottish independence was the United Kingdom’s EU membership, which Scotland might lose upon leaving. Britain’s leaving the EU now seems like an underhanded betrayal to many members of the Scottish National Party, with some even calling for a repeated Scottish independence referendum. Meanwhile, in England, voters with higher education and economic status tended to support Remain more than those with lower education and economic status, who largely believed that the European Union was economically bad for them. Many working-class people felt, with some justification, that blue-collar jobs were being taken by foreign workers, especially Polish immigrants, who under EU law are able to work in Britain very easily.

The Issues

Undoubtedly, the economy was the main issue behind the Brexit vote. Remain supporters argued that remaining within the wide and unified European market was vital for British economic security, while Leave supporters claimed that EU membership was expensive for Britain and cost the UK money that could go towards healthcare. EU membership costs around 13 billion pounds per year, while Britain only received about 7 billion in return.

After the vote, the British pound dropped to a 30-year low compared to the American dollar, falling by around 4%; it currently stands at around US $1.33. The Euro also fell by around 1% and at the time of writing is worth about US $1.11. This drop has many Remain supporters worried that their fears are coming true; Leave supporters maintain that the drop is temporary and that freedom from EU regulations will be better for the British economy in the long term. Nevertheless, the fall of the pound reflects fears of decreased foreign investment in Britain.

Currently, the single European market means that Britain can both import and export goods within Europe without tariffs.  About half of Britain’s trade is within the EU at present. Moreover, workers from other countries can access British jobs, and the same goes for British workers in Europe. Thus, Britain’s leaving Europe means that the future of these jobs will be uncertain; Leave supporters hope that in the long term it will lead to higher British employment in British jobs. Leaving the EU will mean that Britain will be free of European trade restrictions, which currently impose tariffs on outside trading; in the future, Britain will be able to make its own trade agreements, which supporters hope will offset increased restrictions on the European market.

What will the agreement between the EU and the UK look like? There are several possibilities for future models, some more likely than others. In brief:

  • A Norwegian-style agreement, in which Britain would remain within the European Economic Area and follow EU regulations, and would continue to pay for these privileges; this is highly unlikely, as it would fail to address the main issues behind the Brexit vote. The position of Britain within the EU would not be substantially changed.

  • A Turkish-style customs union, in which Britain would continue to follow most (but not necessarily all) EU regulations, and would avoid tariffs within the EU while imposing external tariffs. However, Britain would not have full access to the single market. On the other hand, Britain would be able to exert more control over immigration and would not contribute to the EU budget.

  • Britain could also take a “most favoured nation” approach, wherein Britain would be entirely free to make its own trade deals and regulations without any impositions by the EU. However, this would greatly restrict Britain’s access to the European market. In this scenario, Britain would also have tighter immigration control.

  • A free-trade agreement with the EU, wherein Britain would make its own free-trade agreements with the EU and others. Britain would thus be able to, depending on the deal, avoid import and export tariffs with the European market; however, without a unified set of regulations, there would still be some trade barriers. This would leave Britain free to pursue trade with non-EU partners while avoiding EU tariffs on outside trading. The extents of the agreements would depend on the political climate; Britain would face a trade-off between economic independence and access to the market. Immigration to Britain is not relevant to the free-trade agreements and would be under British control.

  • A Swiss-style bilateral accord would allow Britain access to the single European market in specific sectors, which would be negotiated according to the different cases. Britain would have to follow EU regulations in those sectors, but not others. Free-trade agreements would be negotiated separately, with Britain remaining free to pursue deals with non-EU members independently. The EU may not favour this approach, as it may be difficult to come to an arrangement that benefits all parties. Again, immigration would be controlled by Britain.

In the immediate aftermath of the exit vote, it is becoming clear that Britain’s austerity measures will have to go on hold. While Chancellor of the Exchequer George Osborne had previously pledged to bring about a budget surplus by 2020, Britain may well be forced into more debt in order to offset the immediate economic fallout of leaving the EU, with the money going towards investments such as infrastructure, as well as avoiding the need for tax increases and spending cuts. This position is strongly backed by Theresa May, one of the prominent candidates for Cameron’s successor.

While the economy was the central focus of both campaigning and voting, another issue that overshadowed the campaign was immigration, with the Leave camp having strong anti-immigration sentiments. While much of that was also based on economic reasons, there were undercurrents of xenophobia among right-wing nationalist groups. Indeed, Labour Party MP Jo Cox was murdered by an anti-immigrant nationalist because of her Remain stance and support of immigration. Sadly, in the wake of the Brexit vote there was a spike in anti-immigrant hate crimes, with a 57% increase in violent or verbal attacks against immigrants or even British-born minority citizens. Muslims and Poles bore the brunt of these attacks, which are attributed to xenophobes feeling empowered by what they see as their country’s support.

Political Fallout

David Cameron, who was prominently against Brexit, announced his resignation immediately following the election results, stating that “I do not think it would be right for me to try to be the captain that steers our country to its next destination”. However, he will remain in his position until September 9th, when a new leader will be announced. Cameron will not start the process of invoking Article 50; this task will be left for his successor.

Several candidates have put themselves forward for leadership of the Conservative Party. Notable among them are Theresa May, current Home Secretary, who was against Brexit but is now calling for party unity moving forward. Ms. May was recently said “[The British are] not looking for a prime minister who is just a Brexit Prime Minister, but a Prime Minister who can govern for the whole of the country.” Michael Gove is another potential candidate. Mr. Gove is the current Justice Secretary and a prominent Brexit supporter, having previously stated that he would not run for Prime Minister and had been expected to support the campaign of Boris Johnson. Johnson, erstwhile Mayor of London and strong supporter of Leave, is a controversial and outspoken liberal conservative who had initially put himself forward as a possible candidate. After Gove’s surprising last-minute change of mind, which many Johnson supporters characterized as betrayal, Johnson stepped out of the running. Other candidates are Andrea Leadsom, the formerly pro-EU but more recently pro-Brexit energy minister, Liam Fox, former secretary of defense and Leave backer, and Secretary of State for Work and Pensions Stephen Crabb, another Remain supporter who nevertheless has widespread blue-collar appeal.

Meanwhile, Cameron’s counterpart Jeremy Corbyn, leader of the Labour Party and the official opposition, refuses to resign despite the non-confidence vote his own party brought against him. Corbyn’s position on the EU was complex and evolved over the years of Britain’s membership; while he formally supported Remain as Labour leader, many were unconvinced, as he had voted against joining in 1973 and his support seemed half-hearted and ambivalent to many. In Britain, the official opposition assigns members of a “Shadow Cabinet”, composed of counterparts to the official Cabinet Ministers; over two-thirds of the Labour Shadow Cabinet has resigned (echoing the many Shadow Cabinet resignations upon his 2015 election as Labour leader). Corbyn has long been an unpopular leader in his own party, and the non-binding no-confidence vote went against him by an overwhelming 172-40. While Corbyn refuses to step down voluntarily, there is talk of ousting him; even his two predecessors, George Brown and Edward Miliband, are pressuring him to leave lest he damage the Labour party. The names of Angela Eagle and Owen Smith, both former Shadow Cabinet ministers, are being bandied about as potential challengers to Corbyn for leadership of the Labour party.

Meanwhile, Nigel Farage, leader of the UK Independence Party, is having his day in the limelight. UKIP is a right-wing populist party whose raison d’être is, as its name suggests, British independence and nationalism; it was formed in order to get Britain to leave the European Union. Farage triumphantly announced to the European Parliament: “When I came here 17 years ago and I said that I wanted to lead a campaign to get Britain to leave the European Union, you all laughed at me – well I have to say, you’re not laughing now, are you?” He accused EU leaders of being “in denial” about what he perceives as the failure of the EU due to excessive immigration and economic weakness in the Mediterranean states. Furthermore, he stated that “virtually none of you have never done a proper job in your lives”, while simultaneously requesting that all parties be “grown-up and sensible”. Naturally, this speech was highly controversial, with many European politicians feeling insulted. European Commission President Jean-Claude Juncker said, “You were fighting for the exit, the British people voted in favour of the exit – why are you here?” and accusing Farage of misrepresenting the economic situation during the referendum campaigning. Guy Verhofstadt, former Prime Minister of Belgium, accused Farage of using Nazi propaganda posters depicting refugees.

On July 4th, Farage decided to step down from the leadership of UKIP, saying that his “political ambition has been realized.”

European leaders are largely upset by the decision, which they see as threatening European unity. François Hollande, President of France, and German Chancellor Angela Merkel both expressed regret along with many other heads of state. However, far-right politicians such as France’s Marine Le Pen and Geert Wilders of the Netherlands, who are opposed to Europe on principles of nationalist interests, welcomed the decision and see it as precedent to be followed by other countries in the future.

In the upcoming months, European Union leaders will meet in the absence of British representatives to discuss the exit terms. When the EU bloc has decided what their terms for separation will be, they will negotiate with Britain to draft an agreement; Merkel, one of the most prominent and well-respected leaders in Europe, warns well ahead of time that Europe will not tolerate British “cherry-picking” during negotiations. The negotiations must be agreed upon by Britain and at least 20 EU states with 65% of the population, and will be ratified by the European Parliament; the process will take a minimum of two years, and if an agreement cannot be reached in that time, the negotiations will be extended if all countries agree. After this time, EU treaties will cease to apply to the UK, while the UK Parliament will repeal the European Communities Act of 1972.

Considering the fracture of both of the largest political parties in Britain, and increased European internal tensions due to the usual suspects – the economy and immigration – it is unclear between whom the negotiations will even take place in the next two years, let alone the outcome. Everything might change in Europe, or despite everything, there may be relatively little change. The referendum was largely driven by British partisan politics and the personalities involved; in the future, we are looking at a number of new players and a very different playing field. The wider world situation – that is, the global economy and conflicts in the Middle East – are not going anywhere, and if Europe’s position drastically changes in the future, the entire world may look very different soon…