Brexit: Limiting the Damage

Photo: Philip Stevens 

BRUSSELS - David Cameron’s decision to call a referendum on Britain’s EU membership has inflicted more harm on Britain and on Europe as a whole than any decision by a British prime minister since the 1956 Suez crisis or the 1938 Munich agreement. The governing Conservatives are being driven by extremists and have adopted the policies of the populist United Kingdom Independence Party (UKIP), now racked by internal divisions. The opposition Labour party is in meltdown; the Liberal Democrats marginalized. Public discontent with mainstream politicians continues to grow. The government has no plan for implementing Brexit, no idea of its negotiating objectives, and is wholly unprepared. 

The decade ahead will probably be dominated by tortuous negotiations, disruption, and disinvestment. Brexit negotiations, and the fear of contagion to other member states, will distract the EU from efforts to strengthen the Euro and to address challenges from terrorism to migration, energy security and climate change. Britain, Europe and, indeed, the United States have an interest in limiting the damage.

Theresa May, Britain’s new prime minister, who herself mildly favored “remain” before the June referendum, considers the outcome irreversible and now views Brexit in uncompromising terms. She must deliver Brexit without undue delay to keep her party behind her and UKIP under control. Yet she cannot expect France, Germany, and the Netherlands to agree to a satisfactory deal for post-Brexit Britain ahead of their elections, which run through October 2017. Other member states also face difficult political transitions.

She is right, therefore, to take her time in devising attainable negotiating objectives and testing them out, before formally notifying the EU of Britain’s intention to withdraw. This notification will trigger a two-year deadline, after which Britain will simply become a “third country” enjoying no special relationship with the EU, unless an agreement is approved by all member states.

In Britain, this negotiating pause might allow a degree of realism to return concerning the country’s options. Every day new costs linked to Britain’s ill-considered decision become apparent. Scientists, researchers, farmers, fishermen, and others whose activities have been supported by EU policies and programs for decades, are lobbying the government to set up (costly) equivalent schemes in the U.K. However, the government’s fiscal space is limited and its promises have failed to satisfy the groups affected.  Universities are aghast at the prospective loss of EU students who, according to some calculations, comprise up to half of net migration to the U.K. from other member states in recent years. British engineering and construction companies know that there will be no ready replacement for the European Investment Bank, the world’s largest project lender, in financing major infrastructure projects.

Other member states, and the European commission, are clamoring for a quick Brexit negotiation so that the EU can focus on its other challenges. Britain should be taught a lesson, some contend, to discourage would-be secessionists elsewhere. But beneath the commotion, there is a dawning awareness in European capitals of a shared interest in keeping Britain as close to the EU as possible after its exit.

The customs union and single regulatory area, embracing Britain and the other member states, are founded on substantial mutual economic and commercial interests. Rather than sacrifice these, EU governments may find that they can, in the end, accept certain limitations on the unregulated movement of labor, one of Britain’s main requirements. Despite official doctrine, some European leaders may actually welcome this, faced with their own xenophobic populists. Britain would have to accept EU rules in order to maintain unimpeded access to the EU market for its goods and services under any future agreement, a major difficulty for Theresa May.

She would be in a better position to strike a deal if she wins endorsement as prime minister in a new general election. She might wish to engineer a snap election, to take advantage of Labour’s disarray and UKIP’s internal divisions, though this is difficult under new fixed term legislation. Her electoral prospects are good, for now, especially if she convincingly projects a more inclusive vision of the country’s future, tapping into the frustrations that provoked the Brexit vote. As prime minister of a renewed administration, she would be in a better position to develop a Brexit negotiating strategy and mobilize support for it.

Any post Brexit EU-U.K. deal might be more palatable all around if part of a broader re-think of how the EU functions. Discontent with the EU is widespread and the existing model may be reaching it limits. Instead of digging in, Europe’s leaders should think about how a new relationship with Britain could lead to a more flexible EU model, better adapted to Europe’s diverse nations.