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Brexit: An unlikely divorce?

By Ashok K Lahiri
July 08, 2016 12:19 IST
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The likelihood of the divorce going through appears slim and may result in ‘reconciliation during legal separation’, notes Ashok K Lahiri

One of the earliest and well-known divorce cases in history came from the United Kingdom.

It was between Henry VIII and Catherine of Aragon in the 1520s.

Brexit, the verdict in the June 23 referendum on Britain’s exit from the European Union, has the potential for the UK to provide a startling federal divorce case in history.

But, the likelihood of the Brexit divorce going through appears slim.

It may well result in “reconciliation during legal separation,” rather than adivorce.

The EU is an ambitious attempt to forge a federation from around 50 countries of Europe, a continent with a central role in shaping modern human history and in the two vicious world wars in the last century.

The need for a European federation has acquired added urgency from the rise of alternate world powers such as the United States, Japan, China, and India.

The UK has had a complex relationship and checkered history with the EU.

In 1951, it could have, but did not, join the European Coal and Steel Community -- the precursor of the European Economic Community in 1957, and then the EU in 1993.

Under Prime Minister Harold Macmillan, with Austria, Denmark, Norway, Portugal, Sweden, and Switzerland, it established the European Free Trade Association in 1960, and also sought entry to the EEC.

Its application was vetoed by French president Charles de Gaulle in 1963.

President Georges Pompidou lifted the French veto and the UK, under Prime Minister Edward Heath of the Conservative Party, became a member of the EEC on January 1, 1973.

The Labour Party was divided on the accession. Prime Minister Harold Wilson of the Labour Party, on June 5, 1975, held the first ever referendum in the UK. The referendum endorsed the EEC accession.

Nigel Farage, a member of the European Parliament and leader of the UK Independence Party, summed up the Brexit verdict as the UK people getting their country back.

Mr Farage complained how, with open borders, the UK population, already 65 million, was rising by nearly half a million every year.

UK people wanted to govern their own country and make their own laws, he said.

The EU wants to deepen the integration process. Brexit attempts to chip away at this ambitious project.

Ominously, a spokesman for Russian President Vladimir Putin has commented that the Brexit upheaval was reminiscent of the 1991 break-up of the Soviet Union.

So, in spite of the disturbing developments, what are the reasons that Brexit may finally result in reconciliation?

First, the traumatic market reaction to Brexit on Friday, June 24, the day the referendum results were known.

The pound lost almost 10 per cent vis-à-vis the US dollar and declined from $1.50 to $1.34, its lowest level since 1985.

The FTSE 100, the Financial Times share index of the top 100 companies listed in the London Stock Exchange, fell by more than eight per cent within the first few minutes of trading. With Prime Minister David Cameron resigning and Bank of England Governor Mark Carney promising “additional measures”, FTSE recovered somewhat.

Yet, June 24 ended with FTSE 100 losing 3.5 per cent.

The meltdown was global in scale.

The S&P Global Broad Market Index lost over $2 trillion.

Second, for the formal process of the divorce to start, the UK Prime Minister has to write to the European Commission invoking Article 50 of the Lisbon Treaty of December 2007, the de facto EU Constitution. Article 50 has never been invoked before.

Prime Minister Cameron requires a vote in Parliament to invoke Article 50. But, while making the appropriate noise by saying 'The British people have voted to leave the European Union and their will must be respected,' instead of initiating the formal process of exit, he announced his resignation.

A new Conservative Party Prime Minister is unlikely to be in place before October.

Boris Johnson, Cameron’s likely successor, has already said that UK should not immediately trigger Article 50 to start exit negotiations with the EU and there was “no need for haste.”

Third, many EU members worry that the UK, before invoking Article 50, is likely to try and use Brexit to renegotiate the terms and conditions of its membership in the EU.

And, that is what they do not want.

The Euro-sceptics are not restricted to the UK alone. Populist anti-EU leaders, such as Matteo Salvini of Italy, Marine Le Pen of France, and Geert Wilders of the Netherlands, have already hailed Brexit as a victory of freedom.

Deterring contagion, and preventing copycats and a small Europe is uppermost in the minds of the EU leaders.

President of the European Commission, Jean-Claude Juncker has said that there was no reason to wait until October to begin negotiating Britain’s departure from the EU.

Martin Schulz, president of the European parliament, has said that EU lawyers were studying whether it was possible to speed up the triggering of Article 50. Allowing the UK to renegotiate terms under threat of Brexit, they are afraid, will lead to contagion effect and other members emulating the UK.

Fourth, Brexit’s ‘Leave’ campaign was carried out by two different groups, with contradictory agendas. One was for a more liberal, less regulated and more open Britain.

The other was for a more closed, protected and less global one.

Some view the Brexit verdict as a pure anti-establishment vote against policies formulated by the elite for its own benefit.

Different campaigns may have appealed to different sets of voters, but these voters will find it hard to agree on what they want as an alternative to the existing EU membership.

The UK may want free trade with EU without the other regulations relating to environment, labour laws, and especially migration, this is not consistent with the EU agenda.

EU is likely to stand its ground. The UK will have to find a way to save face and stay within the EU.

The UK is famous for its astute politicians and diplomatic prowess.

With hindsight, the decision of David Cameron in 2013 to hold a referendum on Brexit appears to have been an ill-advised gamble.

But enough arguments -- such as appropriate thresholds for a referendum, the relative roles of elected representatives and referendum in a parliamentary democracy -- can be marshaled to design a face-saving solution.

Ashok K Lahiri is an economist


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