The Day After the 23rd

The British are about to shake the kaleidoscope. Here is the W&Y’s guide to what the picture might look like when the pieces begin to settle.

IN?

The global financial markets may still be a little jittery but should calm down as the overwhelming reaction in that world will be one of relief. In the short term the slight dip in inward investment to the UK should end. There will also be a collective sigh of relief in capitals from Washington to Warsaw, but not in Moscow.

However…. The EU still may not survive in its current state.

The German and French response to the UK’s ‘difficulties’ with ‘Ever Closer Union’ may be to try and accelerate towards…’Ever Closer Union’. If so that will alarm the governments of several EU member states which have significant numbers of Eurosceptic voters. They can be expected to respond to that by demanding their own concessions from Brussels on the grounds that the British were given special treatment when negotiating membership terms ahead of their referendum campaign. Some might even go for their own referendums. Either way groupings of ‘Less Europe’ will emerge more clearly in the wake of the result.

In the UK the margin of victory matters more than it does elsewhere. A narrow victory may lead Prime Minister Cameron to attempt to heal the bitter divisions in his conservative Party by bringing into the cabinet euro sceptics such as Boris Johnson. Senior cabinet members who campaigned for the Out vote such as Michael Gove and Chris Grayling could hang onto their jobs. An extremely narrow victory could even lead to Cameron calling a general election.

A clear victory, say by 10 points or more, would allow the Prime Minister to take his revenge. Leading Out campaigner Boris Johnson could be kept outside of the cabinet which is where Gove and Grayling might find themselves along with other Brexiteers. Mr Cameron then would continue to try and reform the EU from the inside while reaching for his legacy – the man who kept Scotland in the UK, and the UK in the EU.

OUT?

The global financial markets are likely to be extremely volatile for at the least several days as confusion reigns amid much scratching of heads as to exactly what the ramifications will be. Eventually, when they realize the sky has not collapsed, there will be some settling down, but the voyage into the unknown will continue to affect the markets. Both sides are guessing how badly the UK and EU economies would be affected by Brexit and, depending on which is right, the effects will either be severe, or, minimal.

The politicians and lawyers will begin declaring their interpretations of Article 50 of the EU Treaty which sets out how a state leaves the Union. In this uncertain period the UK government will begin to outline which of various routes it wants to take. However, whichever it is, it is unlikely Mr Cameron will be Prime Minister as he will take the blame for calling what Remainers felt was an unnecessary gamble by allowing the referendum.

If there was a clear split in the vote in the UK, with the English solidly voting to leave and the Scots to stay, it is probable the push for another referendum on Scottish independence and subsequent application to join the EU will quickly gather pace. This would mean a very different legacy for Mr Cameron – the man who failed to keep the UK in the EU, or Scotland in the UK.

Leaving the EU would take up to 2 years during which time the UK would still be officially a full EU member, bound by its laws, albeit being simultaneously semidetached from the club. At the end of the process the deal thrashed out would be put to the European and British parliaments for approval.

The UK would try and negotiate a trade deal with the EU something which could take much longer than two years. There are various models including one which would mean the British could still benefit from the single market, but would remain bound by some EU laws including those on the free movement of peoples. Other models include a free trade deal trying to remove regulatory barriers and protectionist policies. This would be very complicated although its likely several European states would push the EU to accelerate the deal in order to facilitate efficient trading with the world’s 5^th largest economy.

The thorny issue of immigration would also have to be sorted out within two years. If London did not allow EU citizens complete freedom to live and work in the UK Brussels would retaliate in kind.

The EU states would watch, and involve themselves, with intense interest in how the UK performed outside of the Union. Over the next few years any sign that it was flourishing would strengthen the possibility of other states holding their own In/Out referendums.

Either way, the Union itself would be diminished. It cannot lose its second biggest economy, and most powerful military and be otherwise. The loss of the UK would strengthen the German/French dominance of the EU which would cause regional groupings such as the Nordics and the Videgrad Group to come closer together to block this. This would also diminish the EU’s political clout.

SHAKEN ALL ABOUT?

The above is why our politicians tells us this is an epoch making vote. Whatever the result the effects, other than on the financial markets and on politician’s careers, will not become clear for months, possibly years. But they will be of great consequence.