After Brexit: the options

As time went on, speculation reached fever pitch. The internet was full of crazy theories about developments that would overturn everything we knew, seemingly convincing timelines of events that would soon unfold, and ingenious analyses proving that things were either nowhere near as bad as they seemed, or much worse than anyone imagined.

I am of course talking about Game of Thrones.

And in the end (no spoilers, I promise!) the vast majority of these excitable scribblings fell away, shown to be the half-baked wish-fulfillment that they always were. The best plot twists in a good story, whether fictional or historical, are the ones that hindsight tells us we should have been able to predict, but didn’t because we were distracted by something else. Yet given enough monkeys with typewriters, there will always be somebody who called it right, whether by divine inspiration or by dumb luck.

The same will apply to Brexit. Fevered speculation at the moment is concentrating on a second referendum to reverse the outcome of the first, Article 50 never being invoked, a federal UK being both inside the EU and outside it simultaneously, England declaring independence from Scotland and other such clever, clever schemes. I’ve even indulged in it myself, enjoying the endless horizon of possibility. But there are constraints on the seemingly infinite selection of options available, and it is vastly more likely that the outcome will be disappointingly prosaic. So, in that spirit I’ll try to lay out the less clever scenarios that have some chance of actually happening.

Nothing

The “referendum, what referendum?” option.

It is entirely possible that nothing will happen, that Article 50 will never be invoked, that some excuse will be found to backtrack on the referendum result – but this would be a risky option to take, both domestically and in the EU. Domestically, simply ignoring a referendum result (no matter how many times you explain “non-binding”) would call into question the legitimacy of the government. And the UK’s position in the EU is already compromised – no political leader would be able to deal with the UK in good faith while the Damoclean sword of a surprise Brexit remained dangling overhead. Cooler heads will prevail, and talk of forcing the UK’s hand will quiet down, but toothpaste cannot be squeezed back into the tube, and nobody’s patience is infinite.

The only theoretical scenario where UK/EU relations could return to the status quo ante would be following a LibDem general election landslide on a manifesto commitment to grovel for forgiveness. Much more likely that the government would collapse, perhaps repeatedly, and the UK’s chair in Europe sits empty while the rest of the world moves on without it.

Likelihood: **… Tempting, but unsustainable.

Customs Union / Common Market

The Turkish option.

The Customs Union is one of the oldest parts of the EU, dating back to the EEC’s founding in the 1950s. It is likely that the UK will retain CU access in any negotiations, as its terms are relatively uncontroversial. It allows for tariff-free trade between its members, a common external tariff rate and a common negotiating position in trade talks with third countries (e.g. TTIP). There is no requirement for freedom of movement in the CU, so this would allow for the immigration changes that were the central issue in the Leave campaign.

The only wrinkle would be that some Leave campaigners (UKIP in particular) were in favour of “negotiating our own trade deals”, which is incompatible with CU membership, but of all the promises to take back this would be one of the easiest. And it could be argued that “access to the Single Market” would be satisfied by the Customs Union (“access to” being distinct from “membership of”).

Turkey, Andorra , San Marino and Monaco already have this relationship with the EU. Norway, Iceland, Liechtenstein and Switzerland however do not, the main sticking points being agriculture and fisheries which are protected by (mutually) high tariff barriers in each case.

Likelihood: ***** With or without SM, see below.

Single Market

The Swiss option.

People often talk about the Single Market as if it and the Common Market were synonymous, but the SM is a more recent development, coming in to force in stages leading up to (and beyond) the original target date of 31 Dec 1992. Its main innovation is the delegation of market regulation to the European institutions, in order to more quickly remove non-tariff barriers to trade between its members – earlier efforts having ground to a halt under repeated national vetoes. The SM is what most people think of when you say “EU”, and it is the creation of the SM that first caused the UK to rethink its relationship with the (then) EEC, leading to Thatcher’s handbag deployments and the Sun’s infamous “Up Yours Delors” front page.

It cannot be repeated often enough that it is the conditions of the Single Market (freedom of movement, laws written in Brussels, budget contributions) that the Leave campaign was aimed squarely at.

It is possible for the UK to stay in the Single Market, either through EEA membership (this would need the consent of Norway, Iceland and Liechtenstein, which would complicate negotiations) or more likely through a Swiss-style bilateral treaty. In either case, it would mean reneging on some or all of the main promises of the Leave campaign. It is worth noting that the Swiss deal does not include financial services – the UK would be desperate to have these included, making its negotiating position in other areas weaker.

(There seems to be one school of thought among Leavers that the UK’s current predicament is the fault of weak politicians who won’t bang the table hard enough during negotiations, and that all the UK needs is a tougher stance to extract more concessions. To that hubris one can only say: if Thatcher’s handbag couldn’t get the concessions you want, what chance do you think you have?)

There is currently no non-EU country that is a member of both the Customs Union and the Single Market, but there is no reason in principle why this could not happen. In practice, simultaneous membership of the CU and SM is effectively full EU membership without the CAP and without a vote. It would be hard to sell any Single Market option (either inside or outside the CU) as a victory for democracy, and a Conservative government that came back with a deal that failed to address the three main Leave complaints (immigration, regulation, taxation) would be vulnerable to attack from UKIP (who are already positioning themselves in anticipation).

Despite those concerns CU+SM is the most likely scenario, one that most Remainers and a sufficient number of Leavers will accept. But because of those concerns, it will probably not be the last word on the subject.

Likelihood: ****. (with or without CU) Minimum economic chaos, maximum political chaos.

Scottish Independence

If Scotland wants to remain in the EU after Brexit, then the only way to do so is to declare independence from the UK. EU members are by definition signatories to the Treaty on European Union (aka the Maastricht Treaty), and only sovereign states under international law have the capacity to sign treaties. The Greenland precedent does not apply, because in that case it is Denmark who is the signatory and therefore the member. Opt-outs and opt-ins are not mirror images. Any territory wanting to be a member of the EU must do so via a sovereign signatory, whether that be itself or its parent state. That means that clever workarounds such as a federal UK will have no bearing on EU membership. You’re either a sovereign state or you’re not.

And this hard choice may be the undoing of Scottish independence, at least in the short term. Scottish resentment may have grown, but its economic predicament has just become more difficult – even setting aside the oil price. Before Brexit, it was a plank of the independence movement that an open border would remain between Scotland and the rUK on the same basis as its Irish counterpart. If the rUK tightens its immigration rules and/or leaves the customs union after Brexit, then a hard(er) border would have to be drawn.

It should be noted however that one commonly-cited impediment to Scottish independence within the EU is nonsense. Scotland cannot be forced to adopt the Euro if it does not want to, even if it is made to sign away the UK’s treaty exemption. Sweden shows the way:

Sweden maintains that joining the ERM II (a requirement for euro adoption) is voluntary, and has chosen to remain outside pending public approval by a referendum, thereby intentionally avoiding the fulfilment of the adoption requirements.

Likelihood: **… (Short term) ****. (Eventually)

The Catalan Precedent

The big “if”.

If both Brexit and Scottish independence happen, and if they happen within a short enough timeframe, it may be possible to strike a deal to allow Scotland to continue its EU membership – either by inheriting the UK’s membership at the moment of independence (which would require a feat of choreography and an innovative interpretation of international law) or by preparing well in advance so that Scotland could be admitted at the stroke of a pen afterwards. Scotland is currently enjoying a moment of remarkable goodwill, but this will only translate into a special arrangement if it can be written in a way that does not set a Catalan precedent, and therefore escapes a Spanish (or Belgian) veto.

A Catalan precedent would be set if the EU allowed a region of a member state to secede and afterwards join the EU without going through the full accession process from scratch (which under Article 49 can be vetoed by any member state). Spain fears that Catalonia and the Basque country would be encouraged to secede if they were able to join the EU afterwards, so threatens to use its Article 49 veto on their (hypothetical) membership applications. If a precedent were to be set that Article 49 could be bypassed, then this veto threat would be worthless. So Spain (and for similar reasons, Belgium) will in turn veto anything that might set such a precedent.

This was brought up in the original indyref as a stumbling block. Scottish independence would have to be followed by the full membership process, just like everyone else. This process would be shorter than for most countries, as Scotland already applies all relevant EU law, but would still be onerous. The UK might be able to persuade Spain and Belgium not to veto Scottish membership outright, on the basis that an amicable divorce would not set a precedent for a contentious one. But Article 49 would have to be obeyed.

In the case of Brexit, the UK would no longer be a member of the EU after Scottish independence – unlike the Catalan case where Spain would absolutely want to stay in – so it could (theoretically) be argued that this would not set a Catalan precedent either. But this decision would ultimately be a political one, and would depend heavily on the mood music. Expect utter carnage if Gibraltar comes up at any point in the discussions.

Likelihood: ????? This bookie is refusing to take bets.

The Irish Border

If the UK stays in the Customs Union then there will be no need for customs controls, and the smugglers will be disappointed – more so if the UK also stays in the Single Market. The great unknown then boils down mostly to immigration control. The current Common Travel Area arrangement relies on the immigration rules for the UK and Ireland remaining broadly equivalent. Shared membership (or non-membership) of the EU, and shared non-membership of Schengen meant that the two states were mostly free to arrange this between themselves. But if the UK tightens its rules regarding EU citizens then Ireland will, for the first time since independence, be unable to follow suit due to its EU obligations.

The only recourse in that event will be for the UK to impose immigration controls on travel to the UK from Ireland, to prevent EU citizens from entering the UK by the back door. Ireland may be able to get away without imposing controls, so long as UK immigration rules are consistently stricter (you only need to impose controls going from a less-strict jurisdiction to a more-strict one, not the other way).

If that is the case, then the most likely arrangement will be to impose controls at the sea/air border, on travel from the island of Ireland to GB. Security checks take place on all sea and air routes already, and these will be further hardened into de-facto immigration controls (but without admitting it, for fear of upsetting the unionists). This effectively leaves NI outside the UK border (and inside the EU) for immigration purposes, but inside the UK for all other purposes.

The price will be more sharing of data between the two border agencies, tolerating EU citizens entering NI so long as they don’t try to get a job, and annoying the unionists who see through it.

Likelihood: ****.

A Border Poll

There will be no border poll for the foreseeable future. The GFA is clear on the conditions, and any decision made by the SoS without supporting evidence would be subject to judicial review.

(And on a side note, Sinn Fein might take a leaf from Cameron’s book and stop banging on about about a border poll – it would do no harm to their unionist outreach programme, if they care about it that is…)

In the longer term however, there may be hints of movement. Young people-of-a-unionist-background of a liberal or left-wing persuasion have been openly questioning the UK government’s (and English voters’) ability to act in NI’s best interests, and their own commitment to a UK-wide identity. While this will not translate into any significant change on the border issue in the near future, it does demonstrate that young people-of-a-unionist-background (we really need better names for these things) do not have infinite patience with the UK government either.

And don’t forget, the practical arguments against a UI haven’t gone away you know.

Likelihood: ….. (Short term) ***.. (Eventually)

Renegotiation

The Hail Mary pass.

It is of course possible that more countries will threaten to follow the UK out the door. If this happens before the UK actually leaves, then there is a slim chance that they could collectively demand treaty change as a price for changing their minds. The UK by itself has already got as much as the EU will give, and has vanishing hope of yet another renegotiation (ah, go on). But with France, Netherlands, Denmark joining in?

Europe has always proceeded by crisis, but a treaty renegotiation in the middle of the current one may expose gulfs too wide to bridge. See the next option.

Likelihood: *…. Stranger things have happened.

Collapse

The hospital pass.

On the other hand, the spectacle of a second, and then a third country voting to leave the EU could trigger a mass loss of confidence and a sudden collapse. Morsels such as the Customs Union might be salvaged from the wreckage, but otherwise it would be a blank slate and a step into the great unknown. Governments freed from the corpus of EU law would be quick to enact reforms in the narrow national interest to deal with the economic and social fallout. Some of these reforms will be more effective than others, some will be less liberal than others and some will be downright nasty.

Likelihood: *…. Terrifyingly possible

  • terence patrick hewett

    Coming up are:

    A US election
    A French election
    A German election
    A UK election

    We have now forcing them to do something.

  • Chingford Man

    I see the FTSE 100 has returned today to pre-referendum levels. I’m confused. Shouldn’t we be in financial meltdown by now?

  • Declan Doyle

    Yes and even the currency levels are not far off what they were just three weeks before the referendum. The catastrophising was always predictable but not altogether accurate.

  • StevieG

    SIgh…You do know that the stock market is not the economy, and that your comment is an irrelevance with regard to the options mooted as to the least worst potential option as a next step with regard to the current mess? You seem to be hanging on to snippets of not very useful information that you hope to show how some of the Remain campaigners were wrong which to me seems like point scoring. You’re looking at the puddle when you need to see the Tsunami.

  • Chingford Man

    No, I’m just pointing out that the predicted apocalypse hasn’t yet turned up, as confidently predicted by the Remain side. Must be a signal failure at Finsbury Park, as we Londoners would say.

    Where is Osborne’s emergency budget? Where is the squeeze on pensions? Despite the best attempts of Cameron, Osborne and Carney, the markets are holding up and readjusting to the new situation. I suggest you do as well, rather than your Private Frazer “We’re Doomed” routine.

  • StevieG

    “No”, you do not know? Or just “no”?
    I would say we are in a mess? Yes/No?
    I am saying it will get worse before better – say 15 years min.
    You are pointing to indicators that have no relevance to next week never mind in 1 year, and you appear to be doing so for what reason? To be a ray of positivity as sure it’s great to be rid of the cause of all our ills that brought no benefits – the EU?
    Just because you say stuff over and over, and throw a lot if it against the wall, does not mean it is true or based on any informed opinion.
    This discussion is about what options are open to the UK now, not who said what about the stock market and the rich bankers/financiers and companies that are not based in the UK. I prefer the EEA option.
    If I appear gloomy, it is because I see it as gloomy, and I see no future for my kids in this country on the basis of what is most likely to happen and what options we have open to us.

  • Chingford Man

    If you really can assert with confidence that the UK economy is screwed for the next 15 years, shouldn’t you employ your skills elsewhere, like the Lottery numbers? What “informed opinion” suggests 15 years of misery? The soothsayers who called for the UK to enter the Euro? The kind that was so badly caught out by Brexit?

    As John Redwood pointed out, retail sales, average earnings and employment are all up, and shares have rallied. I agree with his opinion that the UK could withdraw the EU quite quickly and rely on WTO rules. It would still have access to EU markets even without being part of the single market. The recent fall of sterling would make exporting cheaper whilst increasing the cost of EU exporting to us, should the EU impose tariffs up to the WTO permitted limits. If the EU does make its products too expensive then others are quite willing to sell to us instead.

    So, no reason to be depressed. Free markets are coming to the rescue.

  • grumpy oul man

    But you regurly assert that all is going to br good. That the tories will share with us , but when asked a simple question like “how much money will we save after we leave the EU “you get all coy.
    Before the ref Nigel was telling us it was 350 million. Now like you he cant give a figure.
    Now a stock market that bounces up and down like a balloon is your latest last hope.

  • Chingford Man

    Oh dear, you’re going to be a nuisance until you get an answer. Farage did give a net figure last week (you can google it if you can be bothered). He said he preferred to use this figure as opposed to the gross figure being used by the Vote Leave. He did not dispute the accuracy of the Vote Leave figure.

    Oh and the Stock Market is not bouncing up and down. It has been climbing all week and is now up to 6400 points. There is no crisis in the stock markets and the weaker pound, sghould it last, will be good for UK exports. So cheer up!

  • grumpy oul man

    again no actual figures from you, surely those who lead Brexit had the full facts, only the craziest Little Englander would make such a far reaching decision without knowing what it would cost.
    What was this net figure, does it take into account the extra cost involved in trading with the EU when we leave, surely you can back up the rosy future you assure us off with some facts.
    these are reasonable questions and deserve answers,
    As for market stability we will see , Britain is about to change and change a lot the Conservative is having a bloodletting and it would be no great surprise that the next Prime Minister is not too fond of the idea of leaving Europe, Labour is to all intents and purposes incapable of acting as a opposition the liberals have not got the MPs , UKIP even less this leaves the SNP as the only effective political force .
    So the UK will be entering the most important and complex negotiations ever with a divided government a divided people and the only organized effective party is one which seek to break the union.
    to tell you the truth it does not look good, the markets may well decide its to fluid.
    But Hey i could be wrong, I am sure your confidence in the future is based on hard numbers so lets have them please.
    Oh and by the way it would be most helpful if you could supply a link to Nigel stating this net number before the vote, only i cant seem to find it anywhere but somebody seems to have photo shopped pictures of him standing in front of posters with the 350 figure on them, bloody lefties eh cant trust them and there magic computer skills.

  • Chingford Man

    Actually I did have the figures. They are very easy to google. Try “Farage what does EU cost”.

    I didn’t mention it because I just wanted to see if you really didn’t know or if you were too damn lazy to find out for yourself.

    We are now about to have a period of negotiation about the best way to disentangle ourselves sensibly from the EU. Without knowing who will do the renegotiation and to what end (EEA Plus or not), only a stupid person would want an answer now about extra costs to be incurred. However, I can safely say that it will be far less than what we send to the EU presently, gross or net.

  • grumpy oul man

    So great you got the figures, could we see them please.
    ” only a stupid person would want the figures now”
    here is a revolutionary thought,
    Only a stupid person would make a major decision without having even a ballpark figure (at least) of what it was going to cost.
    And no link to Farage using this net figure as you claim.
    this is all very amusing, and we haven’t even got onto the fact that the migrant thing has collapsed,

  • grumpy oul man

    Oh Dear you seem a bit unsure of the traditional way discussions like this work.
    Here is they way these things normally go,
    You make a claim or point and then YOU produce your evidence, it is not up to me to go out and search for what you mean, (i could go to a different source than the one you used) I you produce the link then I look at it and we discuss it, in the knowledge that are both talking about the same thing.
    So the link please, and while your at it could i see something proving that Nigel mentioned the reality of the 350 million before the referendum!
    So only a stupid person would want at least a ballpark figure of the cost before they made a very important move.
    Now how came you safely say there will be a gross saving after all “, only a stupid person would want an answer now about extra costs to be incurred”
    since you don’t know what extra costs will be involved”

  • StevieG

    Wolfgang Munchau narrows down the pragmatic options to 2 (http://on.ft.com/29bCWaE)…the EEA and Bilateral approach (I guess akin to the Custom Union approach mentioned in this article), and it is all about the timing…the EEA as a stepping stone given ‘immigration’ needs some considered thought as to how this will be managed (including EU citizens in UK, and UK citizens in EU, borders, impementation) before entering into an eventual free-trade (on specific goods) agreement.
    Not sure how this will make all the Brexiters happy, and indeed there are implications for London as a financial centre, and in NI, where do we think we will put those hard borders? There will be a negative economic impact in NI undoubtedly, and reinforced with plans for a corporation tax cut UK wide (http://www.bbc.co.uk/news/business-36699642) – assuming the view that this would be of benefit to the NI economy, this is now negated, and doubly so given we will not be part of the EU and perceived knock-on impacts for investment (especially given FDI in NI is already lagging behind other parts of the UK – see http://www.ey.com/UK/en/Issues/Business-environment/ey-attractiveness-survey-2016-uk) and in comparison to Ireland (see https://www.pwc.ie/media-centre/assets/publications/2015-pwc-ireland-investing-in-ireland-issue-23-july.pdf), we hardly register in importance.

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