The Long Slog Ahead: Britain and Brussels Negotiate the Divorce

The Long Slog Ahead: Britain and Brussels Negotiate the Divorce

The future, smaller EU could look very different from the one that has evolved over the past twenty years.

Among the most critical issues for the proponents of the “Norway-plus” option is the preservation of the so-called passporting rights, allowing non-European firms that are registered in at least one of the EU’s twenty-eight jurisdictions to operate in all other member countries. With Brexit, all businesses operating across the EU from a base in the UK could be affected by a loss of passporting rights. However, European Commission vice president and incoming European commissioner for financial services Valdis Dombrovskis recently reaffirmed before the European Parliament that there would be no passporting for the UK without free movement of people. “The question of the passport is linked to the country being within the EU internal market,” he said, adding that access to the single market would require the UK to accept the EU’s Four Freedoms, including the freedom of people to work anywhere in the bloc. In sum, “there can be no cherry picking.” The fact that this line is being spoken by the incoming commissioner for financial services seems to indicate that the one person in Brussels who should understand UK-based financial services firms’ plight, should they lose the right to passport, is not interested in cutting a deal with the UK. In other words, it appears to be free movement of people or nothing.

The level of access to the internal market will depend on the UK’s acceptance of the Four Freedoms; free movement of people, capital, goods and services. It is hard to imagine that the EU will allow the UK to retain these valuable rights without shouldering the same obligations the referendum rejected. As Angela Merkel pointed out in a speech before Germany’s parliament: “Anyone who wants to leave this family can’t expect to get rid of all obligations while holding onto privileges.” Furthermore, if the EU wants to play hardball, it could decide to open any negotiation on whether the UK’s financial rules are equivalent to the EU, and therefore that UK-based firms can operate in Europe only after the bigger bargain over Brexit is agreed. That would add at least a year on top of the two years it would take to thrash out that deal, a timeframe that would almost certainly be too much for most firms. Many of them would simply decide that it’s more convenient to relocate inside the EU now, rather than wait for the unknown to clear.

Beyond its trading relationship with the EU, the UK will want to retain preferential access to the markets of the fifty-two countries currently covered by individual country or multicountry agreements with the EU. Britain may well have to renegotiate trade deals with all of them. Britain is a large market, so there is a clear incentive for other countries to negotiate a deal, while advocates of Brexit argued that it would be in nobody’s interest to interrupt the current trading partnerships.

If the talks both with the EU and with third countries don’t reach a deal before the EU exit takes effect, then under WTO rules, both the UK and the EU would be obliged to apply to each other the tariffs and other trade restrictions they apply to the rest of the world.

Impact on Britain: A Fractured Kingdom?

Voter turnout for the referendum was high at 72 percent, with over thirty million people participating, while the 52-48 result may lead one to believe the vote to have been a fairly close affair. A closer study of the numbers shows a rather different picture, with a map of a highly polarized society emerging as a result of the ballot. The UK is not only split between two roughly similar halves (pro- and anti-Brexit), but also sharply divided along generational, educational and regional lines.

73 percent of people aged 18–24 and 62 percent of those between 25–34 voted Remain, while 57 percent of those aged 55–64 and 60 percent of the 65 and above cohort voted Leave. 71 percent of university graduates voted Remain, against 34 percent of those with only a high-school education. England, with the notable exception of London, voted for Brexit by 53.4 percent to 46.6 percent, as did Wales, with Leave getting 52.5 percent of the vote there. On the other hand, Scotland and Northern Ireland both backed staying in the EU. Scotland supported Remain by 62 percent without a single constituency putting Leave in the lead, while 56 percent in Northern Ireland voted Remain.

Thus, an important implication of the vote is the increased possibility of a breakup of the UK itself. Nicola Sturgeon, Scotland’s first minister, now argues a second referendum on Scottish independence is “highly likely” as the result of a “material change in circumstance,” leading to Scotland being taken out of the EU against her clearly expressed will. However, the complexities of unraveling the UK at the same time as it negotiates its withdrawal from the EU are such that it is highly unlikely the two could be done concurrently. Spain and France have already indicated they will block separate talks with Scotland, insisting exit talks will only be held with the UK government and not the Holyrood administration. Sturgeon must likely win a new independence referendum to retain her hopes of Scotland remaining an EU member. However, Sturgeon also knows that she cannot afford to call and lose a second referendum, as a second defeat would most certainly terminate dreams of independence. Hence, she will be in no rush to hold another referendum until polls consistently show solid majority support for independence.

The results of the referendum may also have major ramifications for Ireland, with Northern Ireland’s Deputy First Minister Martin McGuinness and Irish political leaders south of the border calling for the reunification of Ireland after Britain’s vote to leave the EU. The UK’s exit from the EU and renewed border controls could undermine two decades of peace between former sectarian rivals and dampen economies in both Irish regions. The dismantling of military border posts was a key aspect of a 1998 peace deal that ended three decades of violence between Catholic nationalists seeking a united Ireland and Protestant unionists who wanted to keep Northern Ireland as part of the UK. Lord Trimble, the former leader of the Ulster Unionist Party who negotiated the 1998 Good Friday Agreement that brought peace to Northern Ireland, conceded that if Scotland did become independent then a united Ireland would be “on the table.”

Gibraltar, which like Scotland and Northern Ireland voted to remain in the EU, has signaled it wishes to explore its options. As long as the UK was a member of the EU, Brussels remained neutral in the ongoing dispute between Spain and the UK about sovereignty over “the Rock.” It is likely, once the UK is officially out of the EU, that Brussels as well as many member-state capitals will back Spain.

Whatever happens, it is unlikely that the current UK institutional setup will come out unscathed from the Brexit vote. The governance of England, Scotland, Wales and Northern Ireland needs to be reinvented if the UK is to be saved from disintegration, an independent all-party group of experts, the Constitutional Reform Group, has argued. The group, convened by former Conservative cabinet minister Lord Salisbury, has made the case for radical constitutional change in the UK, proposing for the existing union to be replaced with fully devolved government in each part of the UK, each given complete sovereignty over its own affairs.

Impact on the EU: Where Do We Go from Here?

EU leaders are struggling to develop a coherent response to the shock of an imminent UK departure. The European Parliament and European Commission president Jean-Claude Juncker have called for the UK to move quickly on filing a notification to withdraw so that exit negotiations can begin swiftly. The thinking behind that push for early action is linked to the fear of a possible “referenda chain reaction” on the continent. Additionally, it addresses the desire to send a strong message that there is a cost to leaving the EU to the potential voters of the Euroskeptic parties Front National and Alternative für Deutschland ahead of the 2017 French and German elections.

The commission has already appointed the head of its EU Brexit taskforce, Didier Seeuws, a Belgian national who served as chief of staff to Herman van Rompuy during his tenure as European Council president. Seeuws will lead the EU’s negotiating team working on a British exit deal. Negotiations will be split into two separate streams: the first stream, to be run by the commission, will manage the “nuts and bolts” of the UK leaving the union. The second, managed by Seeuws on a day-to-day basis, will determine the political nature of the UK’s post-Brexit relationship with the EU.

At the council, representing the member states, things are a little more nuanced. While a clear common position has crystallized as to declining to hold any informal talks with Britain ahead of that country’s official exit notification, a divide between proponents of a quick versus a slow exit has emerged.