Brexit - the day after: what would it be like?

It is the morning of Friday, June 24th, 2016, at 10 Downing Street, and for David Cameron the news is still sinking in: the United Kingdom has voted to leave the European Union.

Television screens are filled with images of jubilant Leave campaigners waving Union flags, and the grinning faces of Boris Johnson and Nigel Farage are everywhere. Running across the bottom of each screen are the latest bulletins from the financial markets: the pound has fallen through the night in Asia. It has just taken another big tumble now that Frankfurt has opened, and currency traders are braced for further losses when London opens, in less than an hour.

Hope never quite died for Cameron during the night, as the count in Manchester went first one way and then the other, reflecting the results coming in from different parts of the country.

Scotland, as expected, has voted decisively to remain, as has Northern Ireland, by a smaller margin. But England and Wales, which account for nearly 90 per cent of the population, have pushed the Leave vote into victory, with 51.5 per cent to Remain’s 48.5 per cent. The turnout is 52 per cent.

Scotland’s first minister, Nicola Sturgeon, has already announced that she will consult her colleagues at Holyrood about the case for a second independence referendum, on the grounds that Scotland’s constitutional status has been changed against its will.

The Brexit referendum result is yet another upset for the pollsters, none of whom had predicted the Conservatives' overall majority in last year's general election, either. The result is a surprise even to Leave campaigners, who have fought a disorganised campaign under a divided leadership and were prepared to be disappointed.

The Remain campaign, by contrast, have been disciplined and professional, backed by big business, the unions, most of the cabinet and all of the opposition parties at Westminster, apart from Ukip and the DUP.

None of this was enough to overcome the greater passion on the Leave side and the higher turnout among older voters, who have voted overwhelmingly against the EU.

Cameron has little time to brood on how the vote was lost, however, because within days he will have to leave for Brussels, where EU leaders will meet at a summit arranged before the referendum date was set.

As he pictures the dull beige stone and reflective glass of the Justus Lipsius Building a knot forms in the prime minister’s stomach. It was here, only four months ago, that he basked in the praise of his fellow leaders as he left with the renegotiation deal he told them he needed to swing the referendum.

Soon he will face the frosty smile of Angela Merkel, the contemptuous, glassy-eyed stare of Jean-Claude Juncker, and awkward, pitying glances from around the table. Only his faithful friends Enda Kenny, fresh from his own near-death electoral experience, and Hungary’s pariah prime minister, Viktor Orban, can be depended on to show real warmth.

In Brussels, the leaders will look ahead to the negotiations on Britain’s exit from the EU. Cameron’s EU partners are already considering how to limit the disruptive impact of Brexit without rewarding Britain for voting to leave . . .

What happens next?

The scenario imagined above is a plausible outcome. Recent polls suggest a close vote on an exit from the EU, with different surveys indicating tight victories for either side. Simon Tilford of the Centre for European Reform, believes that, although most other member states dislike the idea of Britain leaving, few will be willing to cut London much slack in negotiations.

“Quite clearly, there are some countries, Ireland being one of them, that will be pushing for accommodations, because they have more to lose from Britain leaving, but it’s quite clear from what we see politically in France and Germany – and those two countries will obviously be the two crucial ones – that they will be anxious to do everything in their power to avoid establishing a precedent that could in France’s case embolden the National Front or in Germany’s case lead to a further fraying of the EU. And that for them would be the existential point.”

Article 50 of the Lisbon Treaty sets out the process by which a member state can leave the EU, specifying a two-year limit for formal negotiations, which can be extended only with the approval of all member states.

But, before they get to work on article 50, EU leaders will want to know whom they will be negotiating with. Cameron has insisted throughout the campaign that he will stay on as prime minister regardless of the outcome. Like most political observers in Westminster, Tilford believes this is implausible.

Eurosceptic in charge

“I think it’s quite clear that he will have to step down, and then we could have a period directly after the referendum of the Conservative Party being without a leader, and there’s a very real likelihood that when we do have a leadership contest it will produce a Eurosceptic.”

The system for electing a Conservative leader, under which party members choose between two names put forward by the parliamentary party, is indeed likely to produce a Eurosceptic leader, with Boris Johnson the current favourite. While the Conservatives are electing their new leader Britain’s EU partners will be setting out the terms for a renegotiation.

Although the European Commission will conduct the negotiations, the member states will have significant control over them, and the final deal will have to be approved by the European Parliament.

Britain’s future trading relationship with the EU will be the biggest issue; Tilford believes the EU will offer Britain a straightforward choice. It can join the European Economic Area, like Norway, gaining full access to the single market in return for accepting free movement of people and paying into the EU budget. Or it can have no special trading relationship at all, regaining control of its borders but depending on World Trade Organisation rules for negotiating access to EU markets.

“Given that Norway basically has to sign up to pretty much everything substantive, has to abide by freedom of movement and has to pay substantial amounts of money into the EU budget, it’s very hard to see how that option would satisfy the UK and how it would satisfy the right wing of the Conservative Party,” Tilford says.

Future of the Border

While EU leaders meet in Brussels, officials in Dublin will be considering the scale of the challenge ahead as they seek to limit the impact of what all agree will be a very costly decision for Ireland.

Apart from the collateral economic damage from a slowdown in the British economy after Brexit, the biggest question marks hang over the future of the common travel area between the UK and the Republic of Ireland, and the Border with the North.

“I think it’s very likely that the day after Brexit officials in Belfast, in London and in Dublin are going to think, Okay, we’ve got to try and build up a framework for the common travel area that wasn’t there before,” says Edward Burke, lecturer in strategic studies at the University of Portsmouth.

“You could try to formulate a similar idea to the European arrest warrant for the UK and Ireland . . . As the Schengen countries increasingly come up with their solutions, I think there’s a realisation in Dublin and London that to some degree, regardless of Brexit, we need to enhance our own bilateral co-operation as well.

“So possibly formalising things under the British-Irish Council, possibly building up a somewhat neglected secretariat in Armagh and seeing whether some of these things could be copied for a common-travel-area arrangement.”

EU funding for Northern Ireland will leave a gap to be filled, and with the Conservative Party at Westminster almost exclusively composed of English MPs there will be little appetite for sending more cash to Belfast – or, crucially, to Northern farmers. Burke says that some EU funding in support of the Belfast Agreement will be particularly difficult to replace on account of political sensitivities.

“There’s a major gap in terms of the ex-paramilitary prisoners’ groups, for example. Whitehall has always been to a large degree squeamish about directly funding people who planted bombs in Whitehall and elsewhere in the UK. So the direct funding of former terrorists is a difficult question for the exchequer in London,” he says.

“We’re not talking billions here, but we’re talking about substantial amounts of money over a long period of time. We are talking £100 million.”

How Ireland negotiates

Before the creation of the European single market, in the 1980s, a number of bilateral agreements between Britain and Ireland reduced customs obligations and eliminate a lot of tariffs between the two states. The single market brought much deeper economic integration; ideally, Dublin would like to copy many of the existing arrangements into a new bilateral agreement.

Any such agreement would have to be approved by Brussels, however, to ensure that it undermined none of Ireland’s obligations as an EU member state. But in the short term, Burke believes, there will be a larger issue for Irish officials to struggle with.

“Now the UK will have a bilateral negotiation with the EU, of which Ireland will be one member state in that discussion with the UK about its exit. But the problem is, to try to negotiate on the one hand as an EU member with other EU members about the future relationship with the UK, and on the other hand trying to game-play and say, if those negotiations fail – and they could – what are we going to do bilaterally between London and Dublin, leaving out Brussels? It’s a nightmare scenario for Irish officials in terms of trying to, on several fronts, negotiate several different scenarios all simultaneously.”

Brexit without exit?

But might all this heartache be avoidable? Could Britain and its EU partners find a way to step back from what one expert at the House of Lords recently described as “the long-term ghastliness of the legal complications” of Brexit?

Before the referendum campaign started, Boris Johnson suggested that a Leave vote might not actually lead to Brexit but could be a trigger for a fresh round of negotiations leading to a new deal for Britain remaining in the EU. Under this scenario, instead of starting the clock on two years of negotiations under article 50, Britain and its EU partners would enter informal talks about an improved deal for Britain’s membership.

As the economic implications of Brexit become brutally clear after the referendum, the argument goes, buyer’s remorse will set in among British voters. Like Ireland’s referendums on Nice and Lisbon, a second vote would mobilise the previously complacent Remain voters to turn out and swing the referendum their way.

Tilford is sceptical. “I’m sure that there will be buyer’s remorse as soon as Britain has left. People will be aware of the reality of that decision and the risks. However, I don’t think it will be an easy climate for Britain to backtrack and to indicate that it wants to re-enter negotiations. I think the Conservatives would be deeply split on the issue and the Eurosceptic side would have little option but to stick to their guns,” he says.

“And the rest of Europe will be fearful of doing so, because if they do that for Britain, what’s to stop other Eurosceptic movements pushing successfully for renegotiations and referenda? And that would prove just as destabilising.”