Brexit: A Messy Affair

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M Saeed Khalid*

June 23, 2016 will go down in history as the day of the great setback to the project of European integration, launched after WWII and nurtured over the next 70 years. A majority of UK voters wanted their country out of the 28-member European Union – the first nation state to do so. Four days later, the world witnessed prime minister David Cameron, who had vigorously campaigned for staying in the Union, being told by his EU peers that negotiations on British withdrawal should begin in earnest.

In a nearby building, the European Parliament passed a resolution, urging the United Kingdom to start the exit process by triggering Article 50 of the Treaty of Lisbon immediately. “Why are you here?” asked the European Commission President, Jean-Claude Juncker, from Leave campaigner Nigel Farage, beaming at his unexpected success in the referendum. Farage was undeterred by heckles from other members retorting, “We now offer a beacon of hope to democrats across the European continent…the UK will not be the last member state to leave the EU”.

The referendum of June 23 had produced an unexpectedly clear win for the “Leave” option, by obtaining 51.9% vote against 48.1% for “Remain”. This verdict was well beyond the best the pro-Brexit leaders could imagine as poll after poll indicated a very close contest. The shocking outcome gave a decisive blow to Britain’s off again, on again love affair with Europe.

It may be recalled that Britain’s entry into the EU had not been easy, her commitment as a member was below par and contentious, and the exit is likely to be marred with more acrimony and controversy.

The 20th Century concept of European integration took centre stage with certain visionary leaders in France and Germany agreeing after World War II, to create common institutions as durable safeguards against a return to bloody warfare to settle their disputes. In 1957, the core group of Germany, France, Italy, Belgium, Netherlands and Luxembourg signed the Treaty of Rome to create the European Economic Community – EEC aimed at establishing a common market of goods and services and free movement of people.

The EEC was a roaring success and eventually came to be acknowledged as the mother of all regional organizations. It acted as a magnet to the rest of Europe which recognized the merits of belonging to a united Europe. The process of institutional growth as well the EEC’s expansion was a slow process spread over decades, leading to a political union with membership growing to 28. Along the way, the bulk of the European Union also set up a common visa regime – Schengen – and a single currency – the Euro.

The UK, however, was a special case as it opted out of the common currency and visa system. It remained opposed to further integration measures that would reduce the powers of national governments. Euroscepticism or opposition to policies of supranational EU institutions and its extreme form i.e. opposition to Britain’s membership of the European Union was very much a part of the British psyche. This explains Britain’s lack of interest at the beginning of the efforts aimed at European integration after WWII.

While advocating stronger integration of the continent, the British did not intend to belong to its institutional framework. Thus Britain stayed out of the European Coal and Steel Community – ECSC established in 1951.

Prime Minister Churchill was a supporter of pan-Europeanism and called for a United States of Europe and the creation of a Council of Europe but stayed out of the integration process, stating: “We have our own dream and our own task. We are with Europe but not of it. We are linked but not combined. We are interested and associated but not absorbed.”

The ideas of joining European unification did not sit well with the British concept of unlimited sovereignty. Indeed, the only British to openly support such integration were the extreme right and fascist politicians. The British elites in general were opposed to the idea of their country joining the European institutions as a simple member but aspired for a leadership role that was ridiculed in the continent. Subsequently, staying away from the six founding the European Economic Community, Britain joined hands with Ireland, Denmark and Norway to prepare for their own European Free Trade Association – EFTA.

The loosening of Britain’s special relationship with the US, as witnessed in the Suez crisis of 1956, played a role in the change of approach and Conservative governments started serious attempts to join the EEC in the 1960s. President De Gaulle of France was openly hostile to British accession. Instead of being offered a leadership role, Britain was put on a waiting list, a major humiliation for the pro-European British. De Gaulle’s veto against British membership was a devastating blow to premier Macmillan. It was only after President Pompidou replaced De Gaulle that negotiations were resumed leading to EEC membership in 1973 for Britain, Ireland and Denmark, with Norway staying out.

Controversy over Britain’s membership of the EEC refused to go away. A split within the ruling Labour Party on the issue led to a referendum that eventually took place in 1975. Among those who voted, 67 % endorsed Britain remaining in the EEC. Even that verdict failed to settle the issue as both major parties – Conservative and Labour – have among their ranks, supporters and opponents of European integration.

Of the two parties, Labour had been more Eurosceptic up to the early 1980s. This was to change under the leadership of Neil Kinnock with Labour in the opposition favoring greater British integration into the European Economic and Monetary Union. The Conservatives, under prime minister Margaret Thatcher, took a tough stand for reducing Britain’s contribution to the EEC budget. She was strongly opposed to plans for a single European currency which contributed to her downfall in 1990.

Efforts to deepen European integration led to growing resentment in several member states from the 1990s. The integration process faced a major defeat with the failed Treaty establishing a Constitution for Europe. The role of public opinion gained importance with national referendums, as was the case with the rejection of the constitution by French and Dutch voters in 2005.

Britain’s dilemma concerning the European project was the subject of a book titled An awkward partner: Britain in the European Community by Professor Stephen George published in 1990. He was of the view that although the UK was not the only member to oppose further European integration, it was less enthusiastic than most other members. Britain had been supportive of further intergovernmental cooperation as opposed to supranational authority and a single market rather than the monetary union. In essence, Britain has been attached to the defence of national sovereignty where ultimate decision making authority is located in the UK as a nation state.

Factors contributing to an awkward partner status included the distinct identity and culture of the UK and its special relationship with the United States. The transformation of the EC into a full-fledged European Union hardened opposition against British membership. Millionaire Jimmy Goldsmith founded the Referendum Party with a one point agenda of holding a referendum on the EU. It received 800,000 votes in the 1997 general election, finishing fourth, but failed to win any seat in the house.

The UK Independence Party led by Nigel Farage provided a more enduring opposition to British membership of the EU. Farage and his associates became conspicuous in the European Parliament by displaying UK flags on their desks, calling for their country’s departure from the EU. Public mood in the UK was reflected in UKIP’s growing strength in successive elections to the European Parliament.

There was a persistent lack of consensus among the British elite over benefits from remaining in the EU. The issue continued to accentuate divisions within the Conservative and Labour parties. The feeling of a European identity was weaker in Britain as compared to the other

members. The sovereignty issue had a prominent place in the British debate with many major newspapers taking Eurosceptic positions.

Most, but not all, opinion polls on the question of leaving the EU produced narrow majorities in favour of staying in the Union. The opposition to the Union was strong among the voters above 60(48%). Opposition to the Union decreased to 22% among voters aged 18 – 24. A clear majority of 56% in this age group indicated that they would vote for Britain to remain in the EU.

Cameron called the referendum on EU membership to end Britain’s interminable debate about Europe and heal divisions within his party. Prior to the 2015 general election, Cameron was facing growing demands from his own Conservative MPs and the UK Independence Party for a popular consultation as none had been held since the referendum of 1975. Their argument was that the EU had changed a lot since then, gaining more control over the lives of people.

Cameron acknowledged: “It is time for the British people to have their say. It is time to settle this European question in British politics.” He promised to hold a referendum if he won the 2015 election. Accordingly, after his victory in the election, his government fixed the date of June 23, 2016 as the date for this crucial consultation with the question: “Should the United Kingdom remain a member of the European Union or leave the European Union?”

The word “Brexit” was coined as a shorthand of British Exit just like a possible Greek exit from the EU was dubbed as “Grexit”. In order to make the exit least attractive, Cameron made a vigorous effort to get an agreement with the other EU leaders to change the terms of British membership of the Union.

Cameron assured the voters that the deal reached with the other EU countries would come into effect immediately if the UK voted to remain in the EU. As a result, Britain was to get a special status within the 28 nation Union to help sort out some of the things British people said they did not like about the EU, such as high levels of immigration and giving up the ability to run their own affairs. The BBC analysed what Cameron achieved from his negotiations in the following terms.

Sovereignty:

Cameron secured a commitment to exempt Britain from “ever closer union” to be written into the EU treaties.

Migrants and welfare benefits:

New arrangements would impose restrictions on welfare benefits. No benefits to be allowed for the first three months of new arrivals. If they did not find jobs within six months, they would be required to leave. Repatriation of child benefits to be linked to cost of living in home country rather than the full UK rate.

Eurozone:

Countries outside the Eurozone, such as Britain, would not be required to fund euro bailouts. Measures to further deepen the economic and monetary union, would be voluntary for member states whose currency is not the euro.

Protection for the City:

The deal provided safeguards for Britain’s large financial services industry to prevent Eurozone regulations being imposed on it.

Critics said that the deal would make little difference and fell short of what Cameron had promised when he announced his plans for a referendum. According to subsequent opinion polls, the British public was evenly split. UKIP was the leading supporter of leaving the EU.

About half of the Conservative MPs including five cabinet ministers and several MPs from Labour were also in favour of leaving.

Those in favour of leaving the EU argued that the Union imposes too many rules on business and charges billions of pounds a year in membership fees for little in return. They wanted Britain to take back control of its borders and reduce the number of people coming to live/ work. They objected to the idea of “ever closer union” and moves towards a “United States of Europe”.

Those in favour of Britain remaining in the EU included prime minister Cameron as well as sixteen members of his cabinet. The Conservative Party had pledged to remain neutral but the Labour Party, Scottish National Party and the Lib-Dems were all in favour of staying in. The other EU members as well as President Obama wanted Britain to stay in the EU. Donald Trump, on the other hand called upon the British to leave the Union.

Those campaigning for Britain to stay in the EU said that benefits outweighed the disadvantages. They believed that Britain’s status in the world would be damaged by leaving and that Britain was more secure as part of the 28 nation club, rather than going it alone. Business circles were more for than against the EU membership. The British Chamber of Commerce said 55% of its members backed staying in a reformed EU.

It was also pointed out that even if the British voted to leave the EU, it would take two years to complete the process. No nation state had left the Union after joining. The only example was that of Greenland, one of Denmark’s overseas territories, which held a referendum in 1982, and left the EU after a period of negotiation.

Large scale immigration from new EU members to Britain emerged as the single most important factor behind the heated debate that finally led to prime minister Cameron conceding a referendum on a possible British exit from the Union. The anti-immigrant argument had growing traction among the voters. It was also the one issue that the supporters of Remain campaign failed to counter effectively. The Leave campaign focused on pressures on jobs and social services from migrants belonging to central and eastern Europe.

The Brexit supporters also used the threat of large scale immigration from Turkey if it became an EU member. This argument, though a tool of propaganda, worked on people sensitive to greater arrivals of jobless people. Still some observers were of the view that if Britain voted to leave the EU, it would be because of hostility to immigration. They said disillusionment with the EU had grown because membership became synonymous in many voters’ minds with uncontrolled immigration.

To many, problems like falling real wages and housing shortages were linked to growing migration from EU countries.

International reaction to the prospect of Brexit was generally that of concern and apprehension over a bumpy ride both for Britain and the rest of the EU. Judy Dempsey of Carnegie Europe expressed the view that: “If the British vote to leave the EU in the referendum to be held on June 23, it will deal a devastating blow to the entire architecture of the European Union”.

According to her, Populist and Eurosceptic parties would try to exploit the situation. France’s right-wing National Front leader Marine Le Pen could be emboldened to call for the renegotiation of her country’s EU membership. Other populist and anti-immigration movements including the Alternative for Germany will demand more sovereignty from Brussels. The EU, already weakened by the Euro zone and refugee crises, would face an even bleaker future.

Spiegel Online wrote that Brexit would be a catastrophe for Germany. While angst was mounting in Germany over fears of Brexit, Chancellor Merkel tried hard to desist from making appeals for Britain to remain in the EU lest it has the opposite effect on the British voters. When pressed for comments by a British reporter, Merkel simply said, “I don’t want to give rise to any misunderstandings…the people in Britain are the ones who have a say here, who are the ones to decide.”

It was reported that the British government had requested German and other EU leaders to show restraint on the issue. European Commission president, Jean-Claude Juncker confirmed the understanding by stating that “it would be intelligent and correct to remain as silent as possible.”

Yet, fears of Brexit were palpable across the EU and more pronounced in Germany, the Union’s largest member. In Berlin, politicians feared that Brexit would further strengthen forces pulling the EU apart. The Germans believed that Britain was a necessary counterweight to France in the Union. In many areas including the single market, free trade, competitiveness, cutting of red tape, and particularly in economic and finance policy, Germany and Britain had similar interests.

Spiegel’s article went on to say that “Without Britain, which is also a permanent member of the UN Security Council and a nuclear power, the EU’s importance in foreign and security policy would also decline dramatically.” Anxious not to be seen as interfering in the British campaign, German leadership was preparing for the worst for some time, as Finance Minister Schauble said stoically, “Europe will also work without Britain, if necessary.”

The campaign leading up to the vote on EU membership was thrown into turmoil with the shocking murder of Jo Cox, pro-EU MP of Labour. Her killing stunned the country as campaign from both camps was suspended for three days at its most critical stage. The tragedy highlighted the role of extremist ideologies opposed to immigrants from new EU members as well as refugees fleeing the war in Syria. Jo was not only a fierce campaigner for the “Remain” vote but also a strong supporter for accepting war refugees.

While stabbing and shooting Jo Cox to death, the killer, Thomas Mair had shouted, “put Britain first”. Two days later, at his first appearance in court, he shouted, “death to traitors, freedom for Britain.” He was found to have links with neo-Nazi and anti-immigrant groups. Jo’s elimination underscored that the referendum had become increasingly dominated by the issue of immigration. But through this wanton act by one of its supporters, the “Leave” campaign was seen as having been placed at a disadvantage.

Prior to her death, the “Leave” campaign had been surging in the polls but after her slaying the first poll revealed a 7% lead for the “Remain” option. Even if this was a passing bump, the MP’s murder was likely to create more difficulties for the “Leave” campaigners whose language had become increasingly harsh and seen as fomenting extreme feelings of nationalism directed against immigrants and refugees.

Reactions across the Atlantic had been mixed. The Obama administration was clearly in favour of Britain remaining in the EU. The US president traveled to London to weigh in on the campaign. He urged the British voters to remain in the EU as future prosperity and security of the West was once again on the line. He conceded that ultimately, it was for the British people to decide but he was expressing his views as a friend. Hillary Clinton endorsed Obama’s views by stressing that she valued “a strong United Kingdom in a strong EU” and also valued “a strong British voice in the EU.”

In contrast, Donald Trump, the presumptive Republican nominee supported the idea of Britain leaving the EU. He criticized the Union for being bureaucratic, difficult and overall a disaster.

The idea of having a popular consultation on EU membership had one inherent flaw. The ordinary voter is instinctively inclined to judge membership on emotive issues rather than on economic merits of remaining in the EU. British economists were united in supporting a vote to remain, yet appeared unable to persuade the public to vote for the Union. In an analysis published by Financial Times, Chris Giles pointed out that the UK’s growth of national income per head had been the fastest in the G7 since joining the EU in 1973, having been the slowest between 1950 and 1973.

The economists feared losses in economic activity from Brexit hitting the public finances more than any possible savings in membership fees owed to Brussels. Those pressing for a “Leave” vote were short on proper answers and chose instead to scorn research by claiming that the people have had enough of experts. The FT article concluded: “This is a pivotal moment for Britain. It is also a crucial time for economics. For once, Britain’s economists have spoken with one voice. Britain should not leave the EU, they say. You have been warned.”

The International Monetary Fund cautioned that there would be a 0.3 percent dip in Britain’s growth forecast for this year as a result of the referendum. It warned that if Britain did vote to leave the EU, it could lead to ‘severe regional and global damage’. In a commentary in The Spectator, Tom Goodenough wrote that IMF’s warning would help the EU supporters or those sitting on the fence in their vote to Remain but the Eurosceptics were unlikely to suddenly change their minds.

The result of the referendum was announced on the morning of June 24. The turn out was high with 72% of the registered voters showing up to exercise their choice. The “Leave” option had won with 51.9% over the “Remain” vote trailing at 48.1%. A look at the result reveals that the older generation largely voted to leave while the young in their majority favored to stay in the EU. The less educated were more against the EU while the better educated showed preference for the Union. Leaving the Union was supported by the semiskilled, unskilled and pensioners.

England and Wales voted for “Leave” while Scotland and Northern Ireland preferred to “Remain” in the EU. It was the English countryside- particularly areas with large immigrant inflow from the new EU members – where support for the “Leave” option was the highest. Large metropolitan centres like London, Manchester and Leeds with older immigration voted to remain in the EU.

The region wise vote was tallied as follows:

Region

Leave Remain
England 53.4% 46.6%
Wales 52.5 47.5
Scotland 38 62
N. Ireland 44.2 55.8
UK-Total 51.9 48.1

The referendum result in favour of leaving the EU has thrown Britain’s political scene into turmoil. With the Scots voting 62% in favour of the EU, Nicola Sturgeon, the Scottish first minister raised the possibility of a new referendum on whether Scotland wanted to remain in the UK. She also felt that the Scottish parliament could possibly block the British withdrawal from the EU by rejecting the move to leave.

Martin McGuinness, Sinn Fein leader in Northern Ireland where 55.8 % voted for staying in the EU, said the referendum result would lead to intensifying the call for a poll on a united Ireland.

The result brought tectonic shifts in both Conservative and Labour parties. David Cameron declared that he would step down as prime minister but would remain in office to “steady the ship” while the Conservative party chose a new leader. He expected that the mechanism to trigger Article 50 to begin withdrawal negotiations would be launched by his successor after taking office by October, 2016.

The British Labour Party too faced a crisis as party stalwarts blamed the party leader, Jeremy Corbyn of failure in galvanizing Remain voters among the Labour supporters. Voters in Labour heartlands turned out in huge numbers to deliver a blow to the establishment and the status quo. Corbyn received an overwhelming vote of no confidence from his parliamentary group but refused to step down as the Labour leader unless disowned by the party at large.

The referendum’s outcome sent shock waves through global financial markets. The British pound was hammered in currency trading, losing 10 percent of its value, tumbling to a 31-year low. London share market plummeted to recover after Cameron said he would step down, and pledges were made by central banks to provide sufficient liquidity to volatile markets.

Bank stocks were badly hit with Lloyds down 21 per cent, Royal Bank of Scotland down 18 per cent and Deutsche Bank falling 14 per cent. The Euro also depreciated against the dollar which posted one of its biggest rallies on record and gold prices shot higher. Frankfurt and Paris stock exchanges suffered sharp losses. US stocks also registered a downward trend to recover later.

According to a Financial Times analysis by George Parker, Michael Mackenzie and Ben Hall, “The Brexit vote stunned the political establishment…The vote reflected a roar of rage from those who felt alienated from London and left behind by globalisation. The writers noted that the country was heading for a period of deep political and economic uncertainty. In their view, the EU was also facing an existential challenge after nearly six decades of integration.

In parallel developments, EU supporters in Britain, notably the younger voters in London gathered four million signatures for a petition to debate the withdrawal issue in parliament. They want a second referendum, with a benchmark majority of 60% to take the UK out of the EU. A large public demonstration was staged in London ten days after the referendum, to voice opposition to quitting the EU.

The fact remains that a clear majority of the British voters have decided to leave the Union thereby invalidating the deal painstakingly negotiated by Cameron with the EU if the referendum had produced a result in favour of remaining in the Union.

Barring unforeseen developments in the coming weeks, the UK will become the first sovereign state to negotiate its exit from the EU, a process the rest of the EU wants to begin as soon as possible. Article 50 of the Treaty of Lisbon caters for this eventuality but the devil lies in the details of negotiating the terms and conditions of British withdrawal. Cameron prefers to leave the task of invoking Article 50 to his successor.

Following the referendum, the Leave campaign tried to take the position that there was no need to trigger Article 50 until informal negotiations have taken place – potentially lasting years, something unacceptable to the other members. Leaders like Chancellor Merkel have made it clear that the process should commence as soon as possible. Further, there would be no ‘a la carte’ and no cherry picking possibilities for the British. Out means out, said the European Commission president, Jean-Claude Juncker.

Triggering Article 50, formally notifying the intention to withdraw, starts a two year clock running. In negotiating the terms of exit, each of the 27 others can exercise a veto. It will be subject to ratification by national parliaments, that again raises the possibility of a single parliament delaying the entire process.

The exit part may still be easier than negotiating new arrangements like trading relationships and agreements on the free movement of people. The EU may want to make a tough example of the UK to deter other potential exit seekers. The outcome of the British referendum has increased the prospect of some others like Holland and France reviewing the pros and cons of remaining in the EU. This presents a dilemma to the countries hoping for greater integration, including defence cooperation.

The Commission president, Juncker has called for tighter integration in the event of a Brexit, and has laid out plans for integration of the Eurozone, including a treasury, in order to prevent a recurrence of the Greek crisis. The Eurosceptics like to think that efforts for ever closer Europe may have the opposite effect in the form of an unraveling of the Union. That is, however, rather premature at this stage. What is clear nonetheless is that Brexit has pushed the European project into uncharted waters.

The leading Leave campaigners are no longer at the centre stage of British politics. Nigel Farage, leader of the UK Independence Party and his fellow Conservative campaigners, Boris Johnson and Michael Gove had gone relatively quiet after the referendum. Johnson abandoned the race for Tory leadership without a fight whereas Gove was trailing behind Theresa May as the leading contender to replace Cameron. In an unexpected move, Farage announced to step down from UKIP leadership, saying that his political ambition of taking the UK out of the EU had been realized. Three maverick politicians thus appeared to wander aimlessly after having managed to set the country on a hazardous path. The irony of their actions was compounded by the realization that the country did not want to be led by them on that perilous course.

In the midst of bleak scenarios being evoked all around, the German vice chancellor and economy minister, Sigmar Gabriel sounded a note of distant optimism. While calling for some downsizing in Brussels and institutional reforms in the Union, he said in an interview with the newspaper Neue Osnabruecker Zeitung, that a Brexit did not endanger the EU, and even raised the possibility of Britain rejoining the union in a few decades, especially given that young people voted overwhelmingly to remain in the EU.

Gabriel echoed Chancellor Merkel’s views by stating that Britain should be fairly treated, adding nonetheless that: “It would not be acceptable for the British government to now consult on quitting and on its future relations with the EU at the same time so it can ultimately pick the best of both sets of negotiations.”

Impact on Pakistan

Brexit is bound to have a profound impact not only on the UK. It is also destined to deeply influence the future of the European project. Beyond that, its ripple effects will extend to every other nation having important ties with Britain. Pakistan’s stock exchange was hit, like other bourses, by the news of Brexit vote, losing 1,700 points in the index, to recover to 1,000 points below its pre-Brexit level.

Pakistan’s ministries of foreign affairs and commerce have conducted preliminary reviews of the likely effects of Brexit on exports to the UK which constitute seven percent of Pakistan’s total exports. The absence of the UK from EU forums will be severely felt as that was a vital source of support for Pakistan’s trade negotiations with the EU, leading to the country’s re-integration for three years in the duty free GSP plus regime.

A study by the Institute of Policy Research – IPR – based in Lahore, has highlighted the likely adverse impact of Brexit and the consequent depreciation of the British Pound, on Pakistan’s exports to Britain. Similarly, home remittances are likely to suffer from a weaker pound as well as a downturn in the British economy. Investments from Britain in Pakistan could also be negatively affected. The IPR study points out that Pakistan is one of the largest recipients of the UK’s overseas development assistance. A prolonged loss in economic growth could lead the UK to reconsider its ODA level, thus affecting assistance to Pakistan.

Collectively, these trends are a source of concern for the Pakistani authorities and business circles facing an economic situation suffering from declining exports and foreign direct investment.

*The author is a former Ambassador of Pakistan to the European Union.