Brexit: What's in store

Brexit: What's in store

For months, British government officials dismissed the need to plan for the possibility that their country would vote to leave the European Union as a nightmare alternative, for which no response was either possible or needed.

But with all opinion polls now indicating that the June 23 EU referendum result is too close to call and that the possibility of a Brexit - a British exit from the EU - is now all too real, civil servants here are busy drafting a variety of "Plan Bs" for the day after the referendum.

And although these scenarios vary greatly, they have one common theme: A British exit from the EU will plunge both the country and Europe as a whole into a prolonged political and economic turmoil, from which both will emerge gravely weakened.

Throughout the referendum campaign, British Prime Minister David Cameron has insisted that he will remain in office, regardless of the ballot's outcome.

Nobody in British politics ever took that seriously. The consensus remains that, should the vote be a "no" to continued EU membership, Mr Cameron will seek an immediate audience with Queen Elizabeth and tender his resignation.

No other way exists, if only because no member of Mr Cameron's Conservative Party would accept to be led by him after such a failure.

However, that will not result in an immediate change of British leaders, for Mr Cameron will have to continue in a caretaker capacity, as the Conservatives go through the motions of electing a new leader.

That election will take at least two months and is guaranteed to be deeply bruising, as the party will struggle to even keep itself together.

And just when the British government would be at its weakest, the country may end up facing some of its biggest challenges in generations. A Brexit vote will generate instant panic in London's financial markets. The pound sterling, already one of the worst-performing major currencies after losing 33 per cent of its value against the US dollar over the past decade, will plunge to new depths.

And although that crisis will be short-lived as markets recover from the initial shock and even seize some new investment opportunities, London will have to fight hard to maintain its status as the world's top financial centre.

The British government will be plagued by periodic scares that some of the 250 international banks which currently have their headquarters in London might move to another country.

Meanwhile, the rest of Europe will have its own, and rather different, political agenda.

A summit of EU heads of state and government is scheduled for June 28 and, if the British public has decided to withdraw from the Union, that would be the day when Mr Cameron would have to ask his colleagues to begin negotiations for a separation. Eager to limit the damage this will inflict on the EU as a whole, European leaders will respond by asking Britain to set out its demands for a "divorce settlement" as early as possible.

But even this is less straightforward than it seems. To start the negotiations, the British government will need a mandate from its own Parliament, where at least two-thirds of the country's 650 MPs remain ardent supporters of Britain's membership in the EU.

Since Parliament is the supreme legal authority in the land, British MPs are theoretically at liberty to even ignore the referendum's results. They will not in practice, but they will try to dilute the referendum's impact by restricting the British government's powers to negotiate the country's withdrawal.

And the opposition Labour Party, whose support Mr Cameron desperately needs, will try to make life as difficult as possible for the government in the hope of forcing an early general election, which does not have to take place until 2020.

Either way, Britons will have to argue long and hard between themselves before they even begin arguing with the rest of Europe.

The British negotiating strategy with Europe would be to keep talking for as long as possible, in the hope that, as time goes by, the Europeans would relent and offer better conditions, or that the mood of the British electorate would change, and Britain could aim for a closer relationship with Europe.

The British negotiating position is already obvious: London will ask for the maintenance of free trade arrangements, for automatic retention of trade treaties with countries outside the EU, for a formal mechanism of political consultation with the EU which would allow the British to retain some influence in Europe, but it will demand to be exempted from the duty to allow other EU citizens unrestricted residence and work rights in Britain.

That will place the EU in a dilemma. On the one hand, the temptation to offer Britain generous terms of co-operation after leaving the EU will be great.

Apart from the fact that no one wants to keep the continent on permanent tenterhooks, the rest of the EU runs a massive trade surplus with Britain equalling £65 billion (S$126 billion) a year, so it will have no interest in disrupting relations with the British.

But if the EU grants Britain too many concessions, this could open the floodgates to demands from other member-states for either their own special status within the Union, or for departing from the EU altogether. So, EU negotiators will have to straddle the line between being tough and being inclusive, not an easy task with a process which is completely unknown and untested, and which will be run by a collective of 27 states, rather than just one negotiator.

The consensus is that Europe may well need the two years allocated for such a separation process under current treaties before reaching a deal which will never be fully satisfactory to either side.

And, meanwhile, broader strategic games will unfold.

By chance, the North Atlantic Treaty Organisation (Nato), Europe's pre-eminent military alliance, will hold its summit early next month, weeks after the British referendum results are known.

The British are bound to argue that, whatever happens to their relationship with the EU, their commitment to Nato remains undiminished. But the United States, which accounts for over 75 per cent of Nato's military capabilities and hoped to lower its burden by increased co-operation between Nato and the EU, is unlikely to be impressed by this British commitment.

Nor are the rest of the Europeans, who are guaranteed to intensify their efforts to create a parallel and purely EU-based defence identity.

Plans to that effect have already been discussed between Germany and France.

They will not come to much, but they have the potential to paralyse all European security efforts as some countries choose to promote the EU as the chief provider of their future security, while others - such as the East Europeans - side with Britain in clinging to Nato as their security guarantor. The chief beneficiary from such developments would be Russia, which has always resented the current European security arrangements.

The main losers will be all Europeans who, yet again, would have proven that despite the huge progress they recorded since World War II, they ultimately proved unable to bury all their nationalist demons.

Possible scenarios

TURMOIL IN BRITAIN

Should Britons vote to leave the European Union, Prime Minister David Cameron is expected to resign, triggering a prolonged battle for the leadership of his ruling Conservative Party:

  • Conservative MPs kick off the process by nominating leadership candidates from among themselves.
  • If more than two are nominated - as seems certain - repeated ballots are held among the MPs until all but the two top candidates remain in the running.
  • The wider party membership then chooses between these two in a postal ballot. 

In 2005, when Mr Cameron was elected as leader, the entire process took two months and, even if this can be speeded up, the postal ballot of the wider membership will still require at least a month.

Mr Cameron will therefore have to soldier on as a caretaker leader, and will be expected to launch the negotiations for separation from the EU.

COMPLICATED 'DIVORCE' PROCEDURES

According to EU treaties, once the British government notifies the EU that it intends to leave, the two sides have up to two years to negotiate the departure.

The pace of the discussions will be formally determined by the EU, not the British government.

Any deal on Britain's departure will require the approval of at least 21 EU member-states representing at least 81 per cent of the EU's total population. It will also require the consent of the European Parliament, which is notoriously unpredictable.

Once the process of withdrawal begins, there is no turning back, and Britain will not be entitled to even participate in the discussions relating to any withdrawal agreement.

BREXIT CAN BE INFECTIOUS

Politicians in other EU member-states may be tempted to follow the British example:

  • In France, National Front leader Marine Le Pen, who polls suggest could defeat a mainstream candidate to reach the second-round run-off of France's 2017 presidential election, has expressed the hope that "the French will also have a similar exercise".
  • Austria's Freedom Party, whose top candidate only narrowly lost recent presidential elections, claims that the country should renegotiate its EU membership, raising the possibility of an "Oxit", or Austrian exit.
  • In Belgium, the far-right Flemish separatist party, Vlaams Belang, says that "Brexit would show other countries that life outside of the EU is perfectly possible".
  • In the Netherlands, Freedom party leader Geert Wilders hopes Britain will vote to leave the EU. His party is doing well: If elections were held today in the Netherlands, it could win 40 seats out of a possible 150 in Parliament.
  • Italy's love for the EU is not as strong as it once was. The populist Five Star Movement has already called for a referendum to leave the euro zone; the party currently has the support of at least a quarter of all Italians. 

Jonathan.eyal@gmail.com


This article was first published on June 19, 2016.
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