Brexit postmortem: New British prime minister will have two logical choices

Britain’s next prime minister - whenever she emerges from the Conservative leadership contest - will face a pressing question: how should an elected government react when its own electorate votes in a referendum to walk off a political and economic cliff? June 23rd involved exactly that.

The intervening days have seen sterling plummet to a 31-year low - experiencing the biggest two-day drop since the post-second World War Bretton Woods arrangements disintegrated in 1971. Share values worldwide plummeted a stunning $3 trillion on the Friday and Monday after the vote: Friday’s $2.1 trillion losses were the heaviest ever suffered in a single market day, wiping colossal sums off savings, income and pensions. The UK has seen its credit rating downgraded, making it more expensive for it to borrow. Recession threatens (notwithstanding the efforts of the Bank of England’s Mark Carney), and the British property market is in trouble.

Instead of the 'Brexit bonus' promised by Brexiters, an austerity budget has been promised. Until the lengthy negotiation period finishes, an investment-freezing fog of uncertainty will grip the UK.

Nor are Brexit negotiations themselves guaranteed to end well. They threaten to be long and difficult. The UK cannot possibly emerge from them in a situation equivalent to or better than membership. At best, it will end up like Norway, with access to the Single European Market retained, but Britain's influence destroyed, a shocking, if economically survivable outcome for a state previously one of the EU's three most influential regarding single market laws.

Locked out

At worst the UK will end up locked out of the Single Market (and given the probable need for an agreement on the UK’s future relationship with the UK to be ratified and approved by parliaments in all 27 other states, it remains to be seen whether this fate can be avoided). In a worst-case scenario, the City of London’s future as Europe’s financial centre would come under threat from cities like Frankfurt and Paris.

Faced with all of this, what should Britain do? Like any government in such a position, it has two logical choices. One is to do what Denmark, Ireland (twice), France and Holland have all done, and that is to seek to reverse a potentially catastrophic referendum result. The other is to make the best of a bad lot, and seek to maximise UK access to the Single European Market, with its 500 million consumers.

To be democratically acceptable, reversing the referendum would require either (a) the election of a government on a 'Bremain' platform or (b) a further referendum. Post-referendum elections in France and Holland played a key role in allowing their respective governments to ratify the Lisbon Treaty after their electorates rejected the Constitutional Treaty in plebiscites in 2004 and 2005.

An early UK general election, however, seems unlikely (and Conservative leadership candidates have been asked by anxious Tory MPs to ensure it remains so). Even if one occurs, Labour is in disarray and the Conservatives split over Brexit. The election of a pro-Bremain regime before Article 50 exit negotiations end is improbable. A pro-Bremain government before Britain's permanent new relationship with Europe is negotiated (a process expected to take ten years) on the other hand, seems quite likely. But by then it may be too late, since the exit date may have passed.

Irish approach

What about a second referendum then (the Danish-Irish approach)? Notwithstanding the wishes of four million online signatories seeking a second poll, one cannot simply re-hold a referendum that one has lost without any justification for doing so. A new bespoke deal - which is what Ireland got in 2009 (with reassurances on e.g., corporate taxation and the promise to retain a commissioner from each state) and Denmark in 1993 has previously provided justification for EU member states to hold second referendums. However, the UK obtained a special deal last February, before its referendum and still voted for Brexit. That bolt has thus probably been shot.

The only possible prospect of a second referendum seems therefore to be a poll on the ultimate deal obtained by the UK in Brexit negotiations (an option suggested by health secretary Jeremy Hunt). That deal is guaranteed to be worse than what the UK has now. It would confront the UK electorate with what it really voted for on June 23rd, rather than what can now be seen to have been the ‘pie in the sky’ promised to voters by Brexit campaigners. But even this option would require both the other member states (and, possibly, the Court of Justice too) to take the view that the Article 50 process can be stopped once it commences. It should be explored as an option however, as it may well offer the only prospect of protecting the interests of the British people at the current level.

Whether or not it avails of such an option, the UK Government must now negotiate the Brexit terms and its future relationship with the EU - which, absent future votes,will become permanent arrangements. The top priority in such negotiations has to be the retention of access to the Single European Market, thereby safeguarding the UK industrial base and its services industry (particularly London's crucial financial services industry). Going by (a) the precedents of Norway and Switzerland, (b) the explicit statements of France's President Hollande, Germany's Chancellor Merkel and several eastern EU member state governments, the UK will have to sacrifice its desire for the imposition of migration restrictions in order to obtain full Market access.

Worryingly, the remaining Conservative leadership candidates are threatening to make migration reform a red line. This position, if maintained, will probably see Britain pay with reduced Single Market access. It is a deeply unwise stance - but very far from the first time the UK’s strategic needs at European level will have been sacrificed for purely domestic reasons.

Professor Gavin Barrett, is Jean Monnet Professor of European Constitutional and Economic Lawat UCD