Brexit shakes Europe, stirs Scotland

After Britain’s referendum, European leaders scramble to keep EU from disintegrating as Scotland considers vetoing it

shreerupa

Shreerupa Mitra-Jha | June 29, 2016 | Geneva


#Boris Johnson   #UKIP   #Nigel Farage   #David Cameron   #European Union   #EU   #Economy   #Europe   #Britain   #Brexit  
UK Independence Party leader Nigel Farage tweeted this picture after the referendum results
Photo: Twitter/nigelfarage

The outcome of the June 23 referendum has shaken the postwar European order. Since the EU’s founding 1957 Treaty of Rome, this is the first time that a ‘major’ member state will leave the club. There is precedent though. Greenland had walked out on Brussels in 1982 after a referendum – it saw excessive interference of the European Economic Community in its fishing industry. This time it’s different. The British voters may have set in motion a gradual process of dismantling of the United Kingdom and even the European Union (EU) as we know them. At the very least, the EU will have to re-negotiate the terms and the values on which the Union claims to base itself. 
 
Fault lines exposed
The post-Brexit anxiety is palpable, and so is the anger of the EU against the UK, of the young against the older voters, of small-town Britain against the metros. Younger people, more assimilated into a sense of  Europeanness and who see the ‘Leave’ camp as isolationist and anti-immigrant, voted overwhelmingly for IN. As many as 64 percent of the 18-to-24-year olds wanted to remain in the EU. But the percentage rapidly declines as one moves up the age-bracket ladder with only 33 percent of the 65-plus age group voting for ‘Remain’. Similarly, the richer parts of the country who have benefitted from the globalising process voted for IN whereas the people who were left behind in the queue voted for OUT. 
 
The reactions have also exposed the increasingly fraught relations among the EU member states and have bared the incompatibilities among England, Scotland, Wales and Northern Ireland. 
 
The uncertainties now are many and disparate. In true Shakespearean dilemma, Great Britain is still contemplating to leave or not to leave. Ironically after all this hoopla, there is a small possibility that Brexit may not happen at all. 
 
There is a petition on the UK government’s website that has more than 3 million signatories in just two days on holding a second referendum. Questions by the public in a live web interaction session held by a British news media reveal anxieties of citizens after the verdict was delivered. Glancing at the questions, one senses that some of them should have been ideally asked before casting the Brexit vote. ‘The British are frantically Googling what the EU is, hours after voting to leave it’, ran a Washington Post headline. 
 
The results of referendums are not legally binding  because the UK is a parliamentary democracy not a plebiscitary democracy. Some politicians have suggested a parliament vote before triggering off divorce proceedings with the EU. 
 
Scotland’s first minister Nicola Sturgeon has told the BBC that Holyrood could veto Brexit. But it is unclear how this point of view sits constitutionally and whether Westminster would have an overriding sovereignty. 
 
Northern Ireland and Scotland which had voted for ‘Remain’ are majorly upset with England and Wales for voting the way they did. Sturgeon said that it is democratically unacceptable for Scotland to be purged out of the EU when it had voted to remain in the Union – about 62 percent had given a thumbs-up to the EU-UK marriage. Similarly, only 44 percent had voted for ‘Leave’ in Northern Ireland and for this reason deputy first minister for Northern Ireland Martin McGuinness of Sinn Féin said that the “British government has forfeited any mandate to represent the economic or political interests of the (Irish) people”. McGuinness has declared the need for a poll on Irish reunification. According to a report by the House of Lords released this May, the parliaments of Northern Ireland, Scotland, and Wales are required to consent to any EU divorce, under the devolution rules, reports Reuters. 
 
David Cameron, announcing his resignation from 10, Downing Street after the results of the in-out referendum, said that he will step down in October and will let his successor initiate the process for formal exit from the EU. Even though there was no public outcry for a referendum, Cameron called one anyway to settle internal party fights, but now insists on letting his successor deal with the fallout of the referendum. There is much internal haggling on the matter of succession. The two Conservatives most likely to succeed as the British prime minister are Boris Johnson, the former London mayor and a leader of the Leave campaign, and Theresa May, the home secretary, who supported Remain.
 
There are multiple opinions on when to formally notify the EU through triggering-off Article 50 of the Lisbon treaty that formally delineates how a member state will exit the EU. The EU will choose a Union negotiator and the terms and conditions for the UK to exit (the treaty is such that it gives an upper hand to the EU over a member state that decides to leave). The EU and the UK would have two years to thrash out a deal failing which the UK will exit anyway without formal deals with the EU. In the meanwhile, the UK also has to internally pass legislations to deal with the legislative vacuum that may arise after it stops being a part of the EU although EU treaties and laws will be applicable to the UK for two years after the UK notifies the EU of its intent to separate. 
 
The sense is that the UK will move out in 2019. 
 
Continent’s reactions
The British referendum has stirred up a hornet’s nest in the continent rallying around an anti-Brussels rhetoric. 
 
The six founding members of the EU – Germany, France, Belgium, Italy, Netherlands and Luxembourg – have asked for the process of separation to begin as soon as possible. The EU leaders have not taken kindly to the referendum – for making their lives more difficult in the face of increasing populist movements that are inimical to the European project. They also want to, presumably, set a strict precedent for other European nations who harbour bright ideas about a breakaway. German foreign minister Frank-Walter Steinmeier who comes from a different political party than German chancellor Angela Merkel has displayed a let’s-get-this-over-with attitude. Merkel, however, has urged for patience in the matter.
 
Strains were also visible when the foreign ministers of the six founding members met in an exclusive club-like meeting on June 25 to discuss the strategies to deal with Brexit. The tendency of certain nations getting sidelined in the Union is one of the persisting criticisms from within the continent. The perception was further reinforced due to the exclusive meeting. Steinmeier sprinted across to Prague on June 27 to his central and eastern Europe counterparts explaining why they were not invited to this meeting. 
 
Merkel has assured that all the remaining 27 states will be part of the ensuing decisions. Her primary concern is to prevent the Union from splintering further. 
 
This will require some work as right-wing and nativist movements are gaining increasing popularity across Europe. The debate surges around ‘more Europe’ versus ‘less Europe’. The Dutch far-right, anti-Islam leader Geert Wilders has asked for a Nexit while French far-right politician Marine le Pen has asked for a Frexit. Spain says it is closer to regaining control over Gibraltar after the Brexit vote. The Italian 5-Star movement wants a referendum on whether to use the Euro or to have two currencies – one for the richer nations and one for the poorer ones. 
 
The anti-Euro, anti-immigrant, right-wing populist Alternative for Germany (AfD) has seats in eight of the country’s 16 state assemblies. Berlin will, therefore, be wary of deepening Europe’s monetary union. AfD has complained that EU is a “transfer union” with money from Berlin’s wallet going to countries like Greece. Germany, France and the UK are the three largest financial contributors to the EU. The Leave campaigners successfully drummed up the figure of £350 million every week sent to Brussels (the Remain camp peg the figure much lower to about £190 million). The OUT camp, of course, ignored the fact that Britain would anyway now have to pay similar amounts to access Europe’s single market. 
 
Two days before the British vote, Jeroen Dijsselbloem, the Dutch finance minister who presides over the eurogroup, said in Berlin: “In the eurozone some are pushing for a completion of the monetary union by creating a full political union, a euro area economic government or even a euro budget … To me it is obvious: we need to strengthen what we have and finish it, but let’s not build more extensions to the European house while it is so unstable.” However, for some other prominent French and Italian ministers, the Brexit verdict is a cue to deepen Europe’s 17-year-old monetary union.
 
Spain, the eurozone’s fourth biggest economy, delivered a fractured verdict and possibly, the formation of a fragile coalition after the general elections held on June 26. Conservative, nationalist, right-wing governments are already in place in Poland and Hungary that never let a chance go to wag a finger against Brussels. Hungary’s premier Viktor Orban has called for a referendum later in the year to reject EU-fixed quotas for settling refugees. The right-wing Sweden Democrats party has welcomed Brexit. In light of these emerging realities and as the Brexit ‘contagion’ spreads, the challenge will be to keep the Union going rather than increasing the ambitions of the EU.
 
The separation 
The process of separation will be painful and long-drawn. Greenland has a population of 56,370 people and had only one issue to negotiate – fish – when it pulled out of the Union. For the UK, it means pulling out of the world’s largest trading zone which is home to 508 million residents, that includes 65 million British. It will also sever a commitment of free movement of labour, capital, goods and services. Though Britain will no longer need to take in EU residents – particularly, east Europeans moving into the country which was one of the most contentious issues in the British referendum — if Britain has its way, the EU may also restrict the movement of British citizens within the continent, which will have major ramifications like disrupting post-retirement plans of the British expats, employment plans and even the health insurances of the British citizens who work in most parts of the EU. 
 
Boris Johnson and some other optimists in the Leave camp have argued that the EU values the UK’s membership so much that the EU would acquiesce to Britain’s withdrawal through a special deal that allows the UK to access the single market without taking the burden of unwanted EU labour in the country. Their optimism may be completely misplaced though. This would only encourage other countries to break away. Even though EU may climb down a bit from the harsh voices that are being heard in the bloc, it is unlikely to move away without extracting its pound of flesh. 
 
If the EU did not grant the UK access to its single market then the UK has to negotiate free trade agreements (FTAs) not only with all the EU countries separately but also with EU’s FTA partners. Britain would also have to negotiate its WTO membership which it had secured as part of the EU. Also, it can no longer be part of the Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated between the EU and the US. 
 
Investors have been gripped by a panic last seen in 2008 after the Lehman debacle. 
 
JP Morgan Chase, Goldman Sachs, Bank of America, Citigroup, and Morgan Stanley have reportedly started the process of moving jobs to other financial centres like Paris, Dublin and Frankfurt. The American banks which set up shop in London had the advantage of moving around the continent. This will change. Earlier, HSBC had said that it would move 1,000 trading jobs to Paris if there was a Brexit.  Morgan Stanley will reportedly move 2,000 jobs out of the UK though it has not confirmed this move yet. The UK could possibly follow in Norway’s footsteps where it is a not a part of the EU but part of the European Economic Area. However, the disadvantage in such a situation will be that the UK will have to implement the EU’s rules but will have no voice in writing them. This will be ironic, indeed, because one of the rallying themes around the British referendum was to escape rules imposed by Brussels. 
 
The House of Lords report of May states that legally the UK may reverse its decision even after invoking Article 50. 
 
Derrick Wyatt, one of the authors of the report, told Reuters: “In law, the UK could change its mind before withdrawal from the EU and decide to stay in after all.” 
 
However, even in such a scenario, it will be difficult to put the genie back in the bottle after the historic referendum.

(The article appears in the July 1-15, 2016 edition of Governance Now)

 

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