On June 23, Britons will have to take a stand on the United Kingdom’s potential exit from the EU. Just over three months from now, a referendum will be held in London. Less than one year after the bailout referendum in Greece, the integrity of the EU will be called into question again.
The consequences of a British exit, or Brexit, are widely worried over but nowhere thoroughly canvassed; the ‘Remain’ campaign has it that leaving the EU is a “leap into the dark,” riddled with uncertainty, while the ‘Leaves’ play up the psychological appeal of a totally independent and sovereign Britain, free of messy continental entanglements. What started as a re-election ploy has begun to sour, and if Prime Minister David Cameron’s Britain does decide to leave the EU, Parliament may be forced into compromises with Brussels that prove bittersweet.
On March 10, Cameron, who firmly believes in staying in, delivered a speech outlining the severe repercussions of a potential Brexit. Yet, two years prior, it was his speech on a failing union that pandered to the discontent that brings us to today’s “Leave” campaign.
In 2013, Cameron wondered whether Britain was better off outside the EU, addressing a widely held belief that the regulation and red tape of the European Union held the country back more than it helped. If his party were to remain in power through the 2015 election, the Prime Minister promised to seek European reforms and to hold a referendum on EU membership by the end of 2017. It was a campaign promise that hit home with voters, and Cameron’s Tory party capitalized on it, winning an unexpected majority.
Following through on his pledge, Cameron attempted to float his demands at the European summit that December, but failed to reach an agreement with the other heads of state. A second meeting in February garnered several minor concessions from the EU, none substantial enough to appease the electorate. The referendum date now decided for June 23 of this year, Cameron is left only to protest and hope that his fellow Britons don’t follow through with an actual Brexit.
The ‘Leaves’ argue Britain is more influential on its own and will be able to negotiate independent trade deals with countries like China and India, while leaving behind the headache of the EU’s regulations on employment, safety and health. A separation from the Union would also ease the country’s immigration problem and temper concerns about incoming migrants. Lastly, Britain’s annual $13 billion EU contribution would come to an end.
The ‘Remains’ point to statistics like Britain’s total exports, 45 percent of which go to EU members. If Britain leaves, the country would be forced to re-negotiate trade deals with those members and with the EU as a whole, a process that could take years. Britain would also have tariffs on goods shipped to the continent. In order to persuade other dissenters to stay, the Union might impose overly harsh trade terms to de-incentivize other members from making a similar choice.
Most importantly, Britain would still need access to the EU’s Single Market. This is the ‘Remain’ campaign’s ace. Any Brexit deal that takes Britain out of the Union would have to give on this point, but getting that to happen will be tricky. Global fund manager BlackRock believes there are four options for such an agreement. There are already three non-EU countries with access to the Single Market—Norway, Switzerland and Turkey. Britain could push for a similar arrangement or strike out on its own.
A Norway-style deal would allow Britain access to the Single Market, but would require Britain to accept the EU’s ‘Four Freedoms:’ free movement of people, goods, capital, and services; as well as submitting to regulations on working hours, banking and climate change. Some of these conditions are exactly why Britain is considering leaving the EU, and thus the deal has been characterized as a non-starter.
An agreement based on Switzerland would give Britain access to parts of the Single Market, but exclude financial services, a sector that has been highly profitable for Britain. Financial services accounts for more than 10 percent of the United Kingdom’s GDP, and over 30 percent of their exports – nearly double that of the next closest nation, the United States. Without financial services on the table, Britain would walk from this deal.
Similarly, a trade deal like Turkey’s allows access to the Single Market but leaves out the services sector and agriculture. Given Britain’s large surplus in financial services, this too would not be a viable option.
Finally, a deal tailor-made for Britain is unlikely. This would require trade agreements with countries in the EU, but no (or relaxed) regulation policies and contributions to the EU budget. Why the EU would grant such concessions to Britain is unclear, and points to why this option is not really a possibility.
In short, the first two options would require a reversal on the issues that triggered the Brexit conversation in the first place, and probably won’t be considered. The others fail to provide an incentive for the EU to grant still more exceptions to the European black sheep known as the United Kingdom. None of these deals seem likely; both parties are better off in the current state.
An exit from the European Union will certainly have consequences, and the referendum in June is only the start. Any of the deals mentioned above would leave Britain worse off, and the EU is likely to punish the country for leaving the Union to dissuade other countries from doing the same. Whether the Brits vote “Remain” or “Leave,” what comes next is likely to be a basket of bad options.