BREXIT TO BE OR NOT TO BE ?

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With British voters in the United Kingdom set to cast their ballots over EU membership on June 23, two last-minute polls are showing slight leads for the “leave” campaign, Bloomberg reported June 22.

An online survey by TNS, which conducted sampling from June 16 to June 22, showed those in favor of leaving the European Union leading by 2 percent, while another online poll conducted by Opinium from June 20 to June 22 showed the “leave” camp up by 1 percent. With just hours to go before balloting starts across the country, champions for both causes made their final appeals.

Outside the United Kingdom, European leaders including European Council President Jean-Claude Juncker and French President Francois Hollande reminded voters that should the “leave” side prevail, the decision would begin a process from which there was no going back. The referendum stands to alter the course of the country and Continent for decades to come.

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The economic consequences for the UK and Europe would be negative, but outcomes are being verstated by both the « Leave » and the « remain » camps.

If Britain withdraws from the bloc, it would hurt economies on the Continent as much as it would its own :

Exports would fall among some of Britain’s main trade partners, including Ireland, which sends about 14 percent of its exports to Britain, and the Netherlands and Belgium, which send about 9 percent each.

Without a trade agreement in place, Britain’s exports to the European Union would also be subject to tariffs, as would EU exports to Britain. London would be forced to pay the “most favored nation” rates set by the World Trade Organization, which range from 4.1 percent on liquefied natural gas to 32 percent on wine.

Services trade could be further complicated by the fact that EU members have erected different non-tariff barriers, such as domestic regulations, in the services sector.

In fact, Brexit could lead to a break-up of the UK as a whole. However, one could argue that UK has export potential beyond Europe, and that the Euro-zone may be better-off with a more Euro Centric-EU.

A DEVIDED STAKEHOLDER LANDSCAPE

The Business community remains devided towards each campaign, but many large and internationally facing firms support the UK remaining in the EU.

More SMEs favour Brexit, and the International opinion is heavily in favor of Britain’s continued membership of the EU.

THE KEY CABINET MEMBERS :

cameronWith respect to the key cabinet members, Premier David Cameron, Chancellor George Osborne, Foreign Philip Hammond, Defence Michael Fallon, Home Theresa May and Business Sajid Javid favor the « remain » campaign.

 

However, the ex-Mayor of London, Boris Johnson, Justice Michael Gove, Employment Priti Patel, the leader of the Commons Chris grayling, Northern Ireland Theresa Villiers and Culture John Whittingdale all favor the « Leave » campaign.

THE POLITICAL PARTIES :

The British Political parties are not aligned either. In favor of the « Remain » campaign, one find the Labour Party, the Liberal Democrats, the Green Party, the SNP, Plaid Cymru, Sinn Fein, SDLP and UUP.

The Democratic Unionist Party and the UKIP are in favor of the « leave » campaign.

Interestingly enough, the Conservative party remains undecided on this issue.

THE MEDIA :

In favor of the « remain » campaign : Financial times, The Economist, The Guardian, The Independent and the Daily Mirror

In favor of the « Leave » campaign : Daily Express, The Spectator, Daily Mail and Morning Star, The Sun.

Undecided and/or Neutral : The Times, Daily Telegraph, City AM, and Evening Standard.

THE POLITICAL FIGURES :

For the « remainimagesLGID2ZPG » : John Major, Angela Merkel , William hague, Barack obama, Tony Blair, Gordon Brown, Francois Hollande, Hillary Clinton, Shinzo Abe, Xi Jinping

 

For the « Leave » : Nigel Farage, Nigel Lawson, Marine Le Pen, Geert Wilders, Liam Fox, Michael Howard, George Galloway, Donald Trump.

Undecided and/or Neutral : Paul Ryan and Ted Cruz

INTERNATIONAL ORGANIZATIONS :

For the « Remain » : World Bank, G-20, IMF, NATO, OECD, Unite the Union, TUC, BAE Systems, M&S, Shell, IBM, Toyota, Asda, BT Group

For the « Leave » : Associated Society of Locomotive Engineers and Firemen (ASLEF), National Union of Rail, Maritime and Transport workers (RMT), JCB

Undecided and/or Neutral : Church of England, Lloyds Banking group, Tesco, Sainsbury’s

OPINION POLLS AND THE IMPACT OF THE ASSASSINATION OF Jo COX

The murder of Jo Cox, a 41-year-old English member of parliament, who was shot and stabbed in her constituency of Yorkshire, northern England, has dramatically altered the balance of forces at a crucial moment ahead of the June 23 poll.

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The killing, for which a 52-year-old local extreme right activist has been charged, caused the suspension of referendum hostilities for three days, depriving the Brexiteers of much-needed momentum, affording the Remain camp an equally needed emotional rallying point .

However, despite the general wave of revulsion about the killing and the view that the alleged murderer (who gave his name in court as “Death to traitors, freedom for Britain”) was a home-grown right-wing political extremist —  the two campaigns remain neck to neck with, as mentiuoned aboved, as slight advance for the « leave » campaign.

One should note however that the proportion of undecided respondents remains consistently around 15%.

Analysts believe that undecided would vote to « remain », and highlight the fact that status quo often proves a more attractive choice in referenda of high importance.

IMPACT OF THE EU CONCESSIONS ON THE BREXIT DEBATE

The proposal that came from the EU in an effort to prevent a Brexit focused on four main areas : Sovereignty, Competitiveness (pledge to reduce bureaucracy) ; Economic Governance and Immigration (halt in work benefit payments to EU migrants for up to 4 years).

That proposal was largely rejected by the conservatives and the UK Media. The EU proposal played in fact a very little role in the Brexit debate.

 

TOWARDS A EUROPEAN POLITICAL DOMINO EFFECT ?

Political uncertainty stemming from a Brexit vote would hurt economies across Europe, as would a decline in trade should London and Brussels fail to reach a new trade agreement.

central bank USCentral banks worldwide, including those of the United States, India and Japan, have issued warnings about what a prolonged period of uncertainty in Europe could do to global financial markets.

 

Southern Europe might even receive a double dose of pain. Spain is scheduled to hold general elections on June 26 that will likely lead to a fragmented parliament, while Italian Prime Minister Matteo Renzi has linked the future of his administration to a constitutional referendum in October.

When coupled with the uncertainty that would follow a Brexit, such political instability in the eurozone’s third- and fourth-largest economies could raise questions about the economic health of Southern Europe as a whole, leading to turbulence in international debt markets.

POSSIBLE RISE OF POPULISM

A vote in the United Kingdom to leave the European Union would send political and economic shockwaves across the world. But regardless of how the British referendum goes, events in Southern Europe will continue to stress the European Union.

manifOne of the most notable consequences of the European crisis is the rise of anti-establishment parties across the Continent.

What began as a financial crisis some eight years ago soon evolved into economic and unemployment crises.

Low economic growth and high unemployment bred popular mistrust of mainstream political parties and gave rise to new political forces that question traditional leadership.

Over the weekend, several events in Italy and Spain highlighted the extent to which anti-establishment sentiment is threatening the political order in some of the eurozone’s largest economies ahead of key votes in each country.

Euroskeptic parties across the bloc would interpret a Brexit vote as support for their own proposals to leave the European Union.

If Britain offers proof that it can endure after quitting the European Union, the bloc’s opponents would begin to hold it up as an example to follow.

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Euroskeptic parties stand to make the most gains in countries with large economies such as France and Italy, where citizens are particularly skeptical of the Continental bloc and optimistic of their countries’ future success independent of the European Union or eurozone. Party leader Beppe Grillo has promised to hold a referendum on Italy’s membership in the eurozone if his party wins the general elections.

But if Britain withdraws from the Continental bloc, its primary effect would be geopolitical, shaking the balance of power in Europe to its very foundation and forcing the bloc to rethink its role in the world.

THE HISTORIC IMPORTANCE OF THE FRANCO-GERMAN ALLIANCE

The Franco-German alliance is the cornerstone on which European power dynamics rest. Conflict between the two drove three Continental wars between 1870 and 1945; its resolution facilitated peace after World War II, planting the seeds of eventual integration through the European Union.

When France and West Germany founded the European Economic Community (EEC), the European Union’s predecessor, in the 1950s, they had two goals.

The first was to create a political and economic structure that would bind the two states together, reducing the chances of another war breaking out in Europe.

The second was to facilitate trade and investment to rejuvenate Europe’s war-weary economies. Both were pleased with the solution they found: France felt it had neutralized its eastern neighbor while maintaining control of Continental politics, and Germany had successfully reconciled with the West.

FIRST VOTE ON BRITAIN’S MEMBERSHIP OF THE EU SINCE 1975

The United Kingdom’s relationship with the European project was somewhat ambiguous.

As an island nation, Britain historically had been shielded from events unfolding on the mainland.

If the United Kingdom intervened in Continental affairs, it was usually to ensure that power remained balanced and yet dispersed enough to keep Britain safe.

When the EEC was born, London initially reacted with skepticism, wary of any project that would transfer more sovereignty from the British Parliament to unelected technocrats in Brussels.

de gaulle 2France, moreover, was eager to keep Britain out of the bloc; it was concerned about granting EEC membership to a country Charles de Gaulle described as “an American Trojan Horse in Europe.”  It came as no surprise when, in the 1960s, France vetoed Britain’s membership twice.

Since the early 1970s, Paris and Berlin realized the geopolitical importance of expanding the EEC’s membership.

Across the English Channel. London had lost its empire and was in the midst of reassessing its international priorities and trade relationships.

Though it saw EEC membership as an opportunity to influence the process of Continental integration, Britain’s interest in accessing the common market far outweighed its aspirations of building a federal Europe.

Unlike France and Germany, Britain had little enthusiasm for transforming the Continent into a United States of Europe.

These motives formed the basis of Britain’s modern relationship with Europe, which was largely established during the administration of Prime Minister Margaret Thatcher.

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Under the Tory leader, Britain simultaneously pushed to lower its contribution to the EEC budget and eliminate trade barriers inside the bloc.

In Thatcher’s now-famous Bruges Speech, she dismissed the notion of a Federal Europe, instead describing the Continental organization as an agreement among sovereign states to establish free trade.

majorA few years later her successor, John Major, negotiated Britain’s opt-out from the eurozone.

Labour Party Prime Minister Tony Blair continued Thatcher’s enlargment policy to the east in the early 2000s.

Bringing the former communist states under the Continental umbrella not only sped up their transition to market economies but also created new demand for British exports.

As an added perk for London, the bloc’s expansion into a larger and more loosely connected entity helped to dilute France and Germany’s hold over Europe.

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But Britain’s approach has produced only mixed results ; the admission of countries such as Poland and Romania has led to a significant increase in immigration to the United Kingdom, a development that Brexit supporters consider a primary reason for leaving the bloc.

 

The vote of June 23rd. Will be the first on Britain’s membership of the EU since 1975, which resulted in a 67% : 33% win for the « yes » side to remain in the EC of the time.

 

TOWARDS A NEW FRANCO GERMAN EUROPEAN DEAL ?

If Britain quits the European Union, though, it risks disrupting the base of power the bloc has come to rest on.

Germany relies on Britain’s backing when it comes to promoting free trade in the face of France’s protectionist tendencies.

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France sees Britain as not only a key defense partner but also a potential counterweight to German influence.

Removing Britain from the equation would shatter this tenuous arrangement at a particularly dangerous time for the deeply fragmented Europe, forcing France and Germany to agree on a new EU related deal.

Should the “leave” camp win the British referendum, tension could rise between the Continent’s north and south.

Countries in Southern Europe want to turn the European Union into a transfer union that redistributes wealth from the relatively rich north to the less developed south and shares risk equally among members.

Northern Europe, by comparison, is eager to protect its affluence and would agree to share risk only if the bloc assumed greater control over the south’s ability to borrow and spend.

The regions also disagree on how the European Union should use its funds : Southern Europe advocates generous subsidies for agriculture and development, a view most Eastern European states share, but Northern Europe would prefer to freeze or even reduce the bloc’s budget.

As a net contributor to the European Union’s budget, Britain has been particularly vocal on these issues.

According to VoteWatch Europe, the country was on the losing side of votes related to EU spending more often than any other member between 2009 and 2015.

Generally speaking, Northern European states such as Sweden, the Netherlands and Denmark tend to vote alongside Britain.

Germany also usually sees eye to eye with Britain on certain topics, such as Europe’s common market, though the two tend to disagree on issues like the environment.

But regardless of other members’ stances, Britain has proved more willing than any of its peers to openly voice opposition to EU decisions.

Without it, the European Union would be short a liberalizing and market-friendly member, and the bloc’s political balance would shift in the favor of protectionist countries in Southern Europe such as France, Italy and Spain.

As fears of a takeover by this Mediterranean group grow among Northern European governments, they would probably become more resistant to the process of Continental integration.

shcengen 1After all, the European Union is already deeply divided over related issues such as the eurozone and Schengen Agreement, which have little to do with Britain since it is not a member of either.

The looming referendum has only revealed more points of contention within the bloc that would be aggravated by a Brexit.

The Dutch government, for example, recently argued for limiting membership in the Schengen zone to a handful of countries in Northern Europe, while the right-wing Alternative for Germany party proposed the creation of a “northern eurozone.”

The north-south divide would not be the only gulf to widen on the Continent, either.

Should Britain leave, the European Union would split between east and west, too. Countries in Central and Eastern Europe see Britain as the defender of non-eurozone members’ interests, and many share London’s views on the sovereignty of member states.

Poland, Hungary and the Czech Republic, for instance, are generally supportive of the European Union but suspicious of Brussels’ attempts to interfere with their domestic affairs.

In particular, these countries have sympathized with British Prime Minister David Cameron’s campaign to give national parliaments more power to block EU legislation.

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Poland and the Baltic states also see Britain as a critical partner on the issue of Russia, since London has fought for a tough European stance against Moscow in response to its annexation of Crimea.

In the event that Britain leaves the Continental bloc, its Central and Eastern European allies may eventually become more isolated from Brussels.

However, a revisited Franco German deal in light of a Brexit could also set the frame for new thoughtleadership and a more competitive EU.

WHAT HAPPENS THE DAY AFETR THE VOTE ?

If the « Remain » Campaign wins, by-in-large, it will be « business as usual ».

The UK would seek to implement the « emergency brake » EU concession on migrant benefits immediately, and the UK Governement would keep up pressure on the EU to reform, likely with no success given Brexit will have been defeated.

In case the « leave » campaign wins, article 50 of the Lisbon treaty would be invoked at the government discretion.

The UK Government would notify the european Council of its intention to leave. This would be followed by a negotiated exit lasting for up to two years.

Needless to say that a « leave » vote would put considerable pressure on David Cameron to resign as Prime Minister.

It is not clear who his successor could be. Most likely a Euroseptic candidate such as the former Mayor of London or justice Secretary Michael Gove.

The fate of the conservative party remains unclear, but the likelihood of its breaking up is minimal whether UK remains or not in the EU. However, there will be resentment from MPs and party members on the losing side.

THE FUTURE OF SCOTLAND AFTER BREXIT

The Scottish voters are consistently more pro-EU than the rest of the UK.

The SNP argues that if Scotland votes to remain but that the rest of the UK votes to leave, it would require another Scottish independance referendum.

As a consequence, Scotland will face a decision to make to chose which Union it wants to be part of : British or European ?

 

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THE UK-EU ECONOMIC & POLITICAL RELATIONSHIP

If Brexit passed, one could imagine the future of the UK-EU Economic and Political relationships according to the following hypothetical models :

1 – Most Politically Palatable & Highest Economic Risks :

This is the scenario of a full reversion of the WTO, where the UK would have no preferential access to the EU, no influence over the EU policy and would have regained its full independence. As such the UK would be in a position to impose immigration caps, and slash regulations.

It could also pursue new FTAs but would expose UK businesses to greater competition.

2 – Least Politically Palatable & Higher Economic Risks :

This scenario would be similar to a swiss type model where bilateral agreements are the commoun diplomatic way forward.

In that example the UK would benefit from some preferential market access, but would have a weak influence over EU policy.

The UK would benefit from a partial independence , but may have to accept free movement of labour.

3 – Least Politically Palatable & Lowest Economic Risks :

The example is based on the EEA membership model.

The UK would have full preferential access to the EU markets, and a weak influence over EU policy.

It would still informally be required to adopt the EU acts, and would benefit from a limited independence (e.g. free movement of travel, WT Directive would still apply but would regain control over agriculture, and fisheries).

4 – Lowest Economic Risks & Most Politically Palatable :

This is the FTA model, where the UK would retain full preferential access to the EU markets for goods and services.

It would regain a degree of political sovereignty and freedom to deregulate – Although some EU regulations would remain.

This scenario is highly unlikely to be successfully negotiated.

WEAKENING EUROPE’S INFLUENCE ABROAD

The loss of one of the few EU members that is able to operate on a global scale would undermine the bloc’s external strength as well.

Only France can match the international presence Britain has, thanks to London’s vast political and economic connections and its military power.

Though a Brexit would not keep Britain from cooperating with Europe completely, given its continued NATO membership and shared security interests with France and Germany, its collaboration with the Continent would be limited.

poutineAs a result, Europe’s ability to cope with challenges abroad — whether the migrant crisis, international terrorism or a more assertive Russia — would diminish.

Germany’s and France’s recent calls for the European Union to deepen its military and security cooperation seem to suggest the two are concerned about this very outcome.

Berlin has avoided taking on the more active role in world affairs that a Brexit would require.

Since the start of the European financial crisis, Germany has reluctantly shouldered the burden of leading the bloc’s political and economic policymaking, but assuming a prominent military role is another matter.

France, for one, would accept it only within the framework of an EU-wide military union, something that would be difficult to achieve amid the atmosphere of isolationism that has settled over the Continent.

The political calculations of French and German leaders preparing for general elections in 2017 would make such cooperation even harder to come by.

No matter what British voters choose, the damage to Europe has already been done. A narrow win for the « Remain » campaign would mean that the Brexit issue is not put to bed. This is a sceanrio that has already been seen in Scotland with respect to the post-independence referendum.

If Britain leaves the European Union, it would throw the Continent into yet another political and economic crisis, giving Euroskeptic forces greater ammunition against the bloc and voters fewer reasons to defend it.

But if Britain keeps its membership, it would have proved to other European governments that it is possible to demand concessions from Brussels while winning support at home.

And so, regardless of what happens June 23, Britain has set a precedent.

 

About Frank Farnel

International Public Affairs and Business Development Professional
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