Once again we are reminded that nothing is forever; not now, not ever, never. On June 23 Great Britain’s electorate voted to quit the 28-member European Union despite threats that economic Armageddon will follow. The Brexit vote represented the sort of populist victory over establishment politics that give elites, few of whom have the scars of the marketplace, agita.
The take-home message is that the British voted to be free to make their own decisions on issues from trade to immigration and free from burdensome one-size-fits-all E.U. regulations passed by unelected, know-it-all Eurocrats.
Like the Arab Spring, the result took many by surprise. Part of the shock came from the fact that pundits, pollsters, and bookmakers all got it spectacularly wrong. They were pretty sure that the British would reject Brexit, the clever name given to the decision to leave the E.U. Few people were surprised when there was a steep sell-off the following day, with shock and awe in financial markets around the globe.
Leadership in the country’s two major parties was in disarray following the vote and none of the British leaders had their hands on the wheel as the vehicle was careening off the cliff. Conservative Prime Minister David Cameron, an opponent of leaving, fell on his sword and announced the next day that he would resign his post but would linger as a lame duck for several months while leaving the divorce negotiations to his successor.
Labor was also in limbo with a leadership challenge being organized against Jeremy Corbyn, who was blamed for a half-hearted effort to keep Britain in the E.U. Perhaps they were thinking they would simply call Harry Potter and borrow his magic wand to deal with the aftermath of the vote.
Britain’s departure must be negotiated with the E.U. and should come at less economic and political cost than when America severed its relationships with an offshore power in 1776. The E.U. wants Britain to kick-start the legal process of quitting by immediately invoking the 250 words in a treaty that set guidelines for divorce and provide a two-year window for talks.
But there is no requirement that Britain invoke the article until it chooses to do so. Until then it remains a full member, with all privileges and obligations.
All this foot dragging contributes to a policy vacuum and heightens the uncertainty surrounding the divorce. If you are a British firm looking to expand, do you implement your plans or consider relocating somewhere where the relationship with the E.U. is more settled?
The vote also casts uncertainty over the future of the Union Jack. Scotland and Northern Ireland voted to remain in the E.U. Scotland is now considering a second independence referendum that would give its electorate the opportunity to leave the United Kingdom and stay in the E.U.
It will take years to sort through the economic impact of the vote as Great Britain and the E.U. negotiate post-Brexit relationships. Ideally the British want to work out trade agreements that maintain unfettered access to the single E.U. market, but without the requirement for the free movement of people. But it is hard to see why E.U. member states would agree to unravel rules on free movement that they regard as sacrosanct.
The loss of Great Britain raises fears that the E.U. will disintegrate into rival nation states. Other members such as the Netherlands may stage referendums on leaving. You can expect the E.U. to take a tough line on the terms of Britain’s departure to make it clear to any other nation that might try to ride British coattails out of the union that there is a considerable cost to doing so.
The only certainty is the cascade of commentary you will hear about this complicated story as the divorce papers are filed in the coming weeks and months.
Originally Published: Jul 9, 2016