Britain, Britain, Britain… What have you done!? While the whole world was taken aback by the vote to leave the EU, what does it actually mean? If Brexit means Brexit, then what is Brexit?
This author, like others, believes that Brexit will not be the economic and political apocalypse that many predicted. Britain will almost certainly retreat to a position within the single market, outside the EU, under a EEA*/EFTA** style arrangement. Here are five reasons why:
1. There is no democratic mandate for a ‘hard Brexit’, meaning an exit from both the EU and the single market: while 51.9% of Britons voted to leave the EU, it is highly unlikely that 96% of these voters believed Brexit meant leaving the single market. Many campaigners for Leave - including outspoken MEP Daniel Hannan and the Adam Smith Institute - explicitly argued to remain in the single market prior to the vote.
2. Assuming Britain triggers Article 50 (to commence formal negotiations) at the beginning of 2017, elections in France and Germany will delay any serious talks until the end of the year. This will not provide sufficient time to negotiate any serious alternative trade agreement. As a consequence, Britain will have to accept an off-the-shelf arrangement at the end of the 2-year negotiation period, which will either be EEA/EFTA or WTO rules.
3. Despite key figures in the Conservative party claiming Britain would be just fine under WTO rules (a so-called ‘hard Brexit’), this is nothing more than a negotiation stance. Britain must maintain a credible threat of a ‘hard Brexit’ to secure any concessions on free movement of labor. As David Cameron discovered to his peril, these concessions aren’t exactly forthcoming.
4. The financial services sector will almost certainly lose its ‘passport’ if Britain leaves the single market. 1.1 million people are employed by this sector, which contributed 11% of total government tax receipts in 2015. If just one-third of banking jobs move out of the UK, it will be devastating to the economy.
5. Theresa May needs to call a general election by May 2020, a year after Britain has left the EU. If she lands a ‘hard Brexit’, the Conservatives will face intense opposition from Labour and the Liberal Democrats who have made it clear that they will fight for single market access. Under a ‘soft Brexit’, her only opposition will come from the UK Independence Party, who struggles to win seats in elections under the first-past-the-post system.
So, was it all worth it? Will Britain regain lost sovereignty under a single-market ‘soft Brexit’ or will it be bound by the same EU laws and regulations it contended? Will other countries join Britain and create a two-tiered system of European integration, one static free-trade agreement and one ever-closer monetary and fiscal union? The next few years will be a fascinating time in European politics
*EEA = European Economic Area, the agreement Norway, Liechtenstein and Iceland have with the EU.
**EFTA = European Free Trade Association, the free trade organization under which Switzerland, Norway, Liechtenstein and Iceland operate, outside of the EU.
Matt is a second year MBA, currently negotiating his departure from the European Business Group