It is just two days to go before the British public cast their vote in the EU referendum and, with the polls neck-and-neck, there are questions about what would happen to the country in the event of a Brexit. I take a quick look at what some of the outcomes might be…
Firstly, the immediate aftermath will cause quite a blow, both financially and politically. Over the last week, the financial markets plunged as Brexit looked increasingly likely and, if it were to succeed in the referendum, it is almost certain that millions will be wiped off the stock market, in a similar way to Black Wednesday in 1992. Moreover, as the pound falls against other world currencies, imports will likely become more expensive, making prices go up in supermarkets across the country. As well as this, the political impact will be immense, and could potentially see David Cameron resign as Prime Minister (if not immediately, then in the coming weeks). A Cameron resignation would trigger a leadership contest and opens up the possibility of an early general election, possibly some time in 2017. Whilst it is not clear what ticket each party would fight on, it is possible that it could be dominated by Britain’s future relationship with the European Union, with the Conservatives (possibly led by Boris Johnson) perhaps arguing for a more distant relationship than Labour under Corbyn.
It would also be up to the Government to decide whether to invoke Article 50 of the Lisbon Treaty, the process in which a country would leave the EU. Upon invoking this, the UK and EU would have just two years to negotiate a future relationship, unless all 27 other countries agreed to extend this for a longer period of time. The likelihood of getting a unanimous agreement to extend such a negotiation seems small, which may result in the UK Government choosing to invoke Article 50 later, following some ‘unofficial talks’. In the interim period between a vote to leave and actually breaking away, EU law would still apply, and it has been speculated that more EU migrants may come to Britain before they are no longer able to do so as easily.
As things currently stand, there are four pathways or ‘models’ that Britain could take and adopt for its relationship with the EU post-Brexit:
- The ‘Norway model’
- The ‘Switzerland model’
- The ‘Canada model’
- World Trade Organisation
This model would give the UK considerable access to the single market (but not as complete as being a full member). Being a member of the European Economic Area has worked well for Norway and provided them with economic success. However, it does have its drawbacks. Participation in the single market would require following a majority of EU law and contribute to the EU budget, whilst not having any representation in the European Parliament or EU Council. It would also mean that the UK would lose access to the EU’s current 53 free trade deals with countries, meaning these would have to be negotiated from scratch, which would take several years. Joining the European Free Trade Association, like Norway, would also likely require joining the Schengen Area, which Britain currently has opted out of and would result in less control over EU migration than our current relationship. Norway themselves have said that this type of relationship would not be suitable for the UK, with the former Norweigan Minister for Europe saying ‘I find it difficult for the UK, with your global ambition, dedication and contributions, being comfortable with such an arrangement’.
Switzerland, unlike Norway, is not a member of the EEA, and as a result it took them several decades to develop individual agreements with the EU and to achieve partial access to the single market. Although they have greater flexibility over which areas they wish to participate in, they still have no influence in creating laws in the areas that do affect them and also contribute to the EU budget. The agreements made between the EU and Switzerland also do not cover the service sector, which would negatively affect the UK economy through the financial sector. The difficulty that this relationship causes the EU means that this is unlikely to be provided as an option to the British upon a Brexit.
Canada’s free trade agreement with the EU (which is still yet to be completed) has been used as an example by Boris Johnson as an example of a country that can freely trade with the EU without having to lose control of their borders. Whilst this is true and would also result in fewer obligations, it would also mean much less involvement in the single market. Moreover, when products made and exported by Britain did not meet EU standards, it would be up to EU authorities before they could be sold within the single market. Whilst such a deal would remove tariffs on many goods, it would be a significantly worse deal for UK businesses and would take several years to negotiate (especially as Britain has not negotiated a trade agreement in over 40 years). It has also been said that adopting such a model could cost every Briton on average £2,000 from reduced growth in GDP.
WORLD TRADE ORGANISATION
This deal is the furthest from the status quo, and the one with the most economic impact. The WTO currently has rules on how high tariffs can be and retaking our seat in the WTO would result in no requirement to follow rules made by the European Union. However, the British Treasury have said that this deal would likely result the British economy being 7.6% lower by 2030 as a result. Moreover, even this option would result in long negotiations, and also mean Britons would no longer be able to freely live and work in the European Union, with visa-free travel also put at risk.