The European Union and Britain The End of the Road

Cover Story By Dr Michael J. Geary

Economically, the effects are still being felt. Britain, after all, has voted to leave the world’s biggest trade bloc. The pound has fallen to a 31-year low against the US dollar and there is growing uncertainty about the future relationship between Britain and the EU’s internal market.

The result was a political earthquake and the aftershocks are still being felt. Britain’s decision to leave the European Union after 43 years of membership took many by surprise but for those of us who have studied closely that relationship, the outcome was somewhat inevitable. This article seeks to not only historicise the referendum result but also, and perhaps more importantly, to explore the road ahead for the United Kingdom as it seeks to navigate a new path outside the world’s largest trade bloc. The key questions that are focused on here include: Why did Britain vote to leave? What now for domestic British politics and the future of the UK? What kind of new relationship is likely to emerge between London and the remaining 27 EU member states? And what impact, if any, will the decision have on Britain’s global role and ambitions?

After years of bickering with other European leaders, including German chancellor Helmut Kohl and French president François Mitterrand, Britain had secured a permanent budgetary rebate at the 1984 European Council summit. Nonetheless, Thatcher continued to clash with European Commission President Jacques Delors throughout the 1980s over his attempts to advance European integration at the expense of national sovereignty.

With raw memories of the painful 1992 ‘Black Wednesday’ sterling crisis that led to British withdrawal from the European Exchange Rate Mechanism, her successor John Major had little appetite for further economic and monetary union, and the increasingly Eurosceptic Tory backbenches had even less. So when Tony Blair swept to power later that decade, it was no surprise that then-chancellor Gordon Brown ratified Major's original decision, establishing five ‘tests’ in order to give up the British pound—tests that almost certainly would not be met. Brown betrayed his diffidence regarding the single currency with his first major policy as chancellor—delivering monetary independence to the Bank of England, a move that announced that he did not foresee Britain transferring UK monetary policy to the European Central Bank anytime soon. The two-tier Europe that was already emerging in the 1990s became an enshrined reality by the early 2000s, through enhanced cooperation, variable geometry or differentiated integration among the member states, by which time Britain had not only opted out of Eurozone membership and scoffed at a unified European foreign policy, but had also rejected the Schengen Agreement on the removal of border controls with the rest of the European Union.

Having spent decades with Britain labelled as the ‘reluctant European’, British ministers sat uncomfortably around the EU table as an increasing number of decisions have been taken by qualified majority voting, leaving British diplomats with less leverage in Brussels than ever and making it impossible to slow down or veto EU initiatives. When David Cameron vetoed the amendment of existing EU treaties to tighten the largely toothless revision of the Stability and Growth Pact that German Chancellor Angela Merkel championed at the end of 2011, Merkel affected an end-run by negotiating a “fiscal compact” that every other EU member signed, except Britain and the Czech Republic. Though Cameron's move marked the first time that Britain vetoed a European treaty outright, it hardly felt like a watershed moment in British-EU relations. Instead, it was just another example of the increasingly familiar British opt out. Deeper political, fiscal and banking integration, even in an effort to save the Euro and forestall a financial crisis that could leave Britain in an even deeper recession, was always going to spook Cameron’s Tory backbenchers. After having avoided the straitjacket of a one-size-fits-all monetary policy, no British prime minister could reasonably renounce sovereignty over fiscal policy as well.

The decision on 23 June to leave the European Union should therefore not come as such a shock. After the political and economic earthquake, the referendum aftershocks are still being felt. On the political side, David Cameron has resigned as prime minister and the race is currently under way to succeed him with Home Secretary Theresa May, most likely to become the second female holder of the keys to No. 10 Downing Street. The longest-serving Home Secretary in half a century, her foreign policy views are largely unknown. While she was part of the Remain side in the referendum, she played a low profile role but her record indicates she is more hardline on immigration than many who supported a Brexit.

Economically, the effects are still being felt. Britain, after all, has voted to leave the world’s biggest trade bloc. The pound has fallen to a 31-year low against the US dollar and there is growing uncertainty about the future relationship between Britain and the EU’s internal market. Clearly, sovereignty played a role with English voters, in particular, keen to claw back many of the powers London has handed to Brussels over the last 43 years of membership. Immigration played its part equally. Even though Britain is not part of Schengen and has control of its own land, air and sea borders (it has a common travel area with the Republic of Ireland, largely for historic reasons), many voters still want to reduce the number of non-British entering the country. In particular, the massive influx of Central and Eastern European workers since 2004 has caused unrest not only with the Eurosceptic wing of the Conservative Party but it has become a key issue for UKIP. The question now remains, what will happen to those EU citizens currently living and working in Britain and those 1.2 million British nationals residing in the EU.

Going forward, Britain must negotiate not only an exit agreement to unravel four decades of EU rules and regulations but also work out a new trade deal with the 27 remaining EU member states. The Treaty of Lisbon provides a two-year window for these exit talks and this can be extended. Yet, the talks on a new trade deal are likely to last longer. It is worth recalling that the recently concluded EU-Canada trade agreement took seven years to complete and this has yet to be ratified by the member states. Britain will want to avoid this lingering uncertainty with companies reluctant to invest in the UK unless they are certain Britain will have access to the all-important internal market of 440 million consumers. A sense of buyer’s remorse has set in Britain with some questioning whether Britain will ever invoke Article 50 and begin the process of leaving. A decline in the pound and a more serious decline in the British economic might well make the next prime minister think twice before pressing the nuclear button and walking out of the EU’s front door without first developing a post-Brexit plan. Yet, Theresa May and other Conservative leadership contenders have made it clear they will begin the exit process but what is not clear is when that process will start.

In short, Britain will likely face a decade of economic uncertainty and increased political isolation as a result of the vote to leave. A second Scottish independence referendum is now more likely than ever and the future of Northern Ireland remains in doubt. The genie is out of the bottle.

Beyond Europe, the implications of Brexit will reverberate for some time. The day that Britain voted to leave, President Obama phoned Cameron and the German Chancellor, a sign perhaps of Washington’s inevitable pivot from London to Berlin. Britain had long been Washington’s political access point to the EU yet the results will lead to a redefining of that ‘special’ Anglo-Saxon relationship. Berlin will become far more important an ally for the US in the years ahead. Should Scotland decide to leave the UK and seek EU membership in its own right as a nation state, Britain will have difficulty justifying its seat on the Security Council. The British nuclear deterrent would have to move from the North Sea and that sense of decline will once increase. A relic of the postwar settlement, the Security Council should and must be reconstituted to include countries such as India and Brazil as permanent members.

The vote to leave the EU was historic; to date, Britain is the only country to have voted twice on whether to leave the EU in the history of the integration process. Once the political dust settles in London and new prime minister is announced in early September, a clearer picture will emerge of how Brexit will take effect. However, those waiting with bated breath for a quick and painless divorce settlement between London and Brussels will be sorely disappointed. The EU will play hardball if Britain wants access to the internal market, access that will come with a price, the price being London’s acceptance of the EU’s four cherished freedoms, including the free movement of EU citizens to work in Britain. It remains to be seen whether the decision to leave will result in long-lasting and painful economic and political consequences for the future of the United Kingdom.

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Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

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