51.9% of the British population voted ‘No’ to Europe during an historic referendum, plunging the United Kingdom and its business community into a sea of uncertainty. Negotiations to exit the EU will likely take a number of years and also likely buffet the British economy.
“The UK will have to get used to being regarded as a third party state which we won’t be handling with kid gloves,” acid words spoken at the end of May from the European Commission President Jean-Claude Juncker sets the tone for the United Kingdom’s new page that it is writing in its history book following the 51.9% referendum vote in favor of leaving the EU. The outcome was certainly a surprise and has resulted in the Prime Minister David Cameron announcing his resignation that will become effective before the October Conservative Party Conference. Financial markets and Sterling both initially plunged in reaction to the outcome and businesses are scrambling to implement crisis plans they have had to prepare in advance of any ‘leave’ vote. However Carolyn Fairbairn, CBI Director-General stated, “Many businesses will be concerned and need time to assess the implications. But they are used to dealing with challenge and change and we should be confident they would adapt. The urgent priority now is to reassure the markets.” Easier said than done in a world full of uncertainty that will probably take years to dispel.
Years of negotiations ahead. Leaving the EU structure is no easy matter. David Cameron will have to invoke Article 50 of the Lisbon Treaty that entails a minimum of two years of negotiations although certain expect that they could extend to even ten years. The Prime Minister will officially explain the decision at the European Council meeting on 28 and 29 June. “The negotiations around the UK’s new relationship with Europe will be driven more by politics than economics, especially given French and German elections next year,” said Mujtaba Rahman at London-based consultancy, Eurasia Group. “Business leaders are therefore going to have to wise up on the peculiarities of European politics, as these will determine the final offer made to the UK.” EU leaders have also been thrown into turmoil following the surprise outcome and they immediately started meeting together in a bid to calm down fears of political contagion as Eurosceptics in several European countries are also calling to leave the EU. Scotland however could call for a return to the EU and may organize a separate referendum.
An option à la Switzerland or à la Norway? In the interim nothing should change very much. From amongst the most plausible developments is the implementation of a new visa system, a reduction in immigration, and priority given to highly skilled workers, whilst the non-UK unemployed living in the UK may be invited to leave. As regards economics, in principle the UK will have to choose one of the two following scenarios: on the one hand remain part of the European Economic Area, similar to the situation with Norway, Island, and Lichtenstein or on the other go down the Swiss road via negotiating a series of free-trade agreements with the EU. The Norwegian type option will constrain Great Britain to uphold most of the European rules on working time, social acquis, part time working, collective redundancies, parental leave…. The Swiss type option promises Great Britain more freedom but in practice would be as restrictive in so far as Switzerland is currently bound to the EU by several hundred agreements. Added to the mix is the disarray of the two million plus British ex-pats living in Europe, who will be confronted with a bureaucratic nightmare as well as uncertainties especially as regards healthcare.