What Brexit Means

What Brexit Means

Brexit supporters argue that the EU threatens sovereignty and stifles growth, while opponents counter that EU membership strengthens trade, investment, and the UK’s standing in the world.
EU and UK flags fly during a pro-EU march in front of the British Parliament in London.
EU and UK flags fly during a pro-EU march in front of the British Parliament in London. Peter Nicholls/Reuters
  • The United Kingdom is set to leave the European Union following the results of a 2016 voter referendum and years of tense relations with Brussels.
  • The move has profound implications for the country’s economic relationship with the bloc and with other countries, including the United States.
  • Some experts fear that Brexit will fuel nationalist movements in other countries or lead to the dissolution of the UK itself if Scotland breaks away.

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For decades, the United Kingdom has had an ambivalent and sometimes contentious relationship with the European Union. London has kept its distance from EU authority by negotiating opt-outs from some of its central policies, including the common euro currency and the border-free Schengen Area. Advocates of a British exit, or Brexit, from the union argued that by reclaiming its national sovereignty, the UK would be better able to manage immigration, free itself from onerous regulations, and spark more dynamic growth.

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The victory of the Leave campaign in a June 2016 referendum on the UK’s future in the bloc led to the resignation of Prime Minister David Cameron. Under his successor, Prime Minister Theresa May, the UK has spent years trying to negotiate a new relationship with the EU. With British leaders now committing to leave the EU single market by October 2019, the country could face the loss of preferential access to its largest trading partner, the disruption of its large financial sector, and even the breakup of the UK itself. Meanwhile, some fear the Brexit process could accelerate nationalist movements from Scotland to Hungary, which would have unpredictable consequences for the EU.

What is the history of the UK’s membership in the EU?

The UK remained aloof from the continent’s first postwar efforts toward integration, the European Coal and Steel Community (ECSC) and the European Economic Community (EEC), formed in the hopes of avoiding another devastating war. “We did not enter the EU with the same political imperatives [as France and Germany],” Robin Niblett, head of the London-based think tank Chatham House, has argued. “We had not been invaded, we did not lose the war, and we have historical connections to all sorts of other parts of the world from our empire and commonwealth.”

The UK didn’t join the EEC until 1973. The British people approved membership in a 1975 referendum, but suspicion of political union with the rest of Europe remained strong. Critics argued that the European project was already moving beyond mere economic integration and toward a European superstate.

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As integration deepened throughout the 1980s and 1990s, the UK’s leaders pushed for opt-outs. The UK didn’t join the single currency or the border-free Schengen Area, and it negotiated a reduced budget contribution. Prime Minister Margaret Thatcher declared in 1988, “We have not successfully rolled back the frontiers of the state in Britain only to see them reimposed at a European level.”

Why did Prime Minister David Cameron try to change the terms of membership?

Many conservatives never reconciled with membership in the EU, and discontent rose in particular over immigration. The issue of migration from within the EU is fraught, as the UK is currently required to accept the free movement of EU citizens.

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Economic migration from Eastern Europe spiked after the EU expansions of 2004 and 2007, pushing net migration to the UK to more than three hundred thousand people per year by 2015. Cameron called the situation unsustainable. “It was never envisaged that free movement would trigger quite such vast numbers of people moving across our continent,” he said in 2015. Drawing on this anger, in 2014, the anti-EU UK Independence Party (UKIP) surged, winning the most votes in the UK’s elections to the European Parliament with an anti-immigration platform.

A wave of asylum seekers arriving from beyond the bloc’s borders also drove tensions. The UK is exempt from the EU’s 2015 plans to resettle hundreds of thousands of migrants and refugees from the Middle East and Africa, thanks to opt-outs from EU immigration policy. But for Euroskeptics, Brussels’s faltering response highlighted the EU’s dysfunction, and UK policymakers bristled at suggestions that EU asylum policy might be altered to make it harder to deport migrants to other EU countries. (Under the current system, non-EU asylum seekers are supposed to remain in the first EU country they enter.)

“What I am proposing cannot mean membership of the single market.”
Theresa May, UK Prime Minister

The eurozone crisis also created strains after the EU proposed an unprecedented “fiscal compact” to coordinate budget policy. Cameron rejected the idea in 2012 as harmful to the UK’s financial sector and chafed at the possibility of an additional treaty change.

In a 2013 speech, Cameron attacked flaws in the eurozone and what he called the EU’s excessive bureaucracy and lack of democratic accountability. He also promised to hold a referendum on the UK’s EU membership if his Conservative Party won the 2015 elections, which it subsequently did.

In November 2015, Cameron announced that before holding a referendum, he would seek EU reform in four major areas: national sovereignty, immigration policy, financial and economic regulation, and competitiveness. In February 2016, EU leaders agreed to a number of changes, including protections for non-euro currencies within the EU, new limits on migrants’ benefits, a commitment to reducing EU regulation, and official recognition that the push for “ever closer union” does not apply to the UK.

With these reforms, Cameron hoped to quell the country’s Euroskepticism, but the specter of mass migration, combined with several major terrorist attacks in Europe, gave the Leave camp new ammunition. “What he didn’t bargain for was that the migration crisis would get very bad,” said CFR’s Sebastian Mallaby. EU leaders have made clear that the subsequent Leave win invalidated the reforms.

What happens now that the British people have voted Leave?

The UK’s situation is unprecedented; no full member of the EU has ever left. (Greenland, a territory of Denmark, left in 1982.)

Under the terms of Article 50 of the 2009 Lisbon Treaty, beginning the process of leaving the EU required an official notification from the UK government. This led to debate over when, or even if, the article should be invoked, and whether the UK Parliament could block it. Theresa May, who won the Conservative Party leadership race to succeed Cameron as prime minister in July 2016, made clear that “Brexit means Brexit.” However, the British high court ruled that invoking Article 50 required the support of Parliament, which subsequently voted affirmatively. May triggered Article 50 on March 29, 2017.

The treaty gave the UK a two-year window to negotiate the terms of its withdrawal, setting the UK on course to exit in March 2019, with or without a deal. But after Parliament failed to approve either May’s negotiated deal or a no-deal departure, the EU eventually granted a six-month extension, making the new deadline October 31, 2019. The UK must still determine numerous transitional procedures for disentangling itself from EU regulations, including settling the status of the millions of UK citizens residing in the EU and EU citizens in the UK and deciding the future of UK-EU security cooperation. The final withdrawal deal must be approved by a supermajority of EU countries, as well as by a majority in the European Parliament.

UK Post EU Options

Separately but simultaneously, the UK must negotiate its future association with the EU. It’s unclear what such a relationship would look like, but several non-EU countries offer potential models [PDF].

Norway, for instance, is a part of the European Economic Area (EEA), which gives it partial access to the single market in goods and services. However, it has no say in making EU law even though it has to contribute to the EU budget and abide by EU regulations. Switzerland is not part of the EEA, but it has partial access to the single market through a web of bilateral agreements that cover goods but not services, which comprise almost 80 percent of the UK economy. Turkey has only a customs union, meaning a free market of goods but not services.

However, both Norway and Switzerland must also accept the free movement of people from anywhere in the EU, one of the Leave campaign’s primary complaints.

In January 2017, May confirmed that the UK would not remain in the single market or EU customs union after Brexit. Instead, the government would pursue a new trade agreement with the EU. May called snap elections for June 2017 with the goal of strengthening her parliamentary majority, and the campaign focused heavily on the parties’ competing visions for Brexit. The Conservatives’ platform called for withdrawing from EU institutions, drastically reducing immigration, and accepting that “no deal is better than a bad deal.” The Labour Party under Jeremy Corbyn espoused a more pro-EU vision for Brexit talks, remaining open to the free movement of EU citizens and ruling out leaving the union without first reaching a framework agreement on the future of EU-UK relations. Corbyn performed well enough to deny the Conservatives a majority, weakening May’s hand in subsequent negotiations with the EU.

By November 2018, May had reached a deal with her EU counterparts, but it led to defections of prominent ministers from her government and divisions among Conservatives, who feared that the proposal conceded too much. Prominent among their complaints was the plan for a “backstop” that could keep the UK in the EU customs union indefinitely, until both sides could agree on a solution to the Northern Ireland border issue. In January 2019, May lost a parliamentary vote on her plan by the largest margin of any prime minister in history. She subsequently lost two more parliamentary votes on the draft deal, and announced her plans to resign as prime minister. The defeat leaves several scenarios in play: a hard, no-deal Brexit; a renegotiated plan that wins the support of Parliament; or, as some have proposed, a second referendum on Brexit.

What were the arguments for leaving the EU?

Reclaiming sovereignty was at the forefront of the Leave campaign. For Leave supporters, European institutions have changed beyond recognition since 1973, and they accuse the EU of becoming a suffocating bureaucracy with ever expanding regulations. “Laws which govern citizens in this country are decided by politicians from other nations who we never elected and can’t throw out,” argued Justice Minister Michael Gove in 2016.

Immigration was the leading complaint. The number of EU migrants in the UK nearly tripled between 2004 and 2015, from about one million to over three million, almost totally due to an influx of citizens from newer members including Poland, Bulgaria, and Romania.

At the same time, terrorist attacks in Paris and Brussels involving EU citizens raised fears that the free movement of people leaves the UK vulnerable. The former head of UK intelligence, Richard Dearlove, argued that controlling immigration would be the primary security benefit of a Brexit, while critics claimed Brexit would instead hurt intelligence cooperation.

Terrorist attacks in Paris and Brussels raised fears that the free movement of people leaves the UK vulnerable.

The immigration issue powerfully combines anxieties over identity, economic security, and terrorism, says Matthew Goodwin, an expert on UK politics at the University of Kent. “The referendum is as much about immigration as it is about Britain’s relationship with Europe,” he told CFR.

For some analysts, European institutions are ill-equipped to address the economic challenges of the modern world. Economist Roger Bootle, author of The Trouble with Europe, argues that the EU’s focus on harmonization—the continent-wide standardization of everything from labor regulations to the size of olive oil containers—threatens Europe with persistent low growth and high unemployment.

Leaving will spark economic dynamism, according to Dominic Cummings, director of the Vote Leave campaign. The EU is “extraordinarily opaque, extraordinarily slow, extraordinarily bureaucratic,” he said. Leave supporters believe that without that burden, the UK can reduce regulation, improve competitiveness, and forge trade deals with fast-growing emerging economies. To Cummings, the reforms Cameron negotiated were trivial, leaving the UK no choice but to eject from a dysfunctional union.

How has the UK benefited from membership, and what are the risks of leaving?

The UK is highly integrated with the rest of the EU in terms of trade, investment, migration, and financial services. The Remain side cautioned against risking that relationship: Cameron warned about a “leap into the dark,” while finance minister George Osborne foresaw a “convulsive shock.”

In the days after the Brexit vote, global markets shook. The British pound fell sharply, reaching a low not seen in more than a century. In response, the UK central bank unveiled a large package of stimulus measures, including its first cut in interest rates in more than seven years.

The outlook is still uncertain. For Adam Posen, president of the Peterson Institute for International Economics and former voting member of the Bank of England, the pro-Brexit camp’s economic arguments were a “fantasy.” He argues that immigration from the EU has driven growth and that belonging to the EU has allowed the UK to “punch above its weight” in trade, since the larger bloc can negotiate more favorable market-access deals with outside countries.

UK-EU By the Numbers

Other U.S. observers have warned that a Brexit would damage the UK’s special relationship with the United States. On an April 2016 state visit, President Barack Obama argued that membership in the EU enhances the UK’s global influence and aids U.S. interests. But President Donald J. Trump has praised the Brexit vote and promised new trade talks between the UK and the United States.

Much will depend on the UK’s post-Brexit relationship with the EU. Losing barrier-free access to the single market, with its more than five hundred million consumers and over $18 trillion worth of gross domestic product, places more pressure on UK policymakers to strike a trade deal with the EU. Without it, UK exports would be subject to the union’s external tariffs. Trade would suffer and some foreign investors would likely pull out of major industries, such as the thriving automotive sector. The UK would also be shut out of any EU-U.S. free-trade deal (known as TTIP) and lose preferential trade access to the more than fifty countries with which the EU currently has trade agreements.

Particularly hard hit, argues founder of the pro-Remain website InFacts, Hugo Dixon, will be financial services. They currently enjoy “passporting,” meaning UK-based financial institutions can operate freely anywhere in the EU. If that is lost, many firms are likely to move their offices—and jobs—out of the UK to elsewhere in Europe.

How could the Leave vote affect the rest of Europe?

The most immediate consequence could be the breakup of the UK itself. Scotland, which held an unsuccessful independence referendum in 2014, voted to remain in the EU. In March 2017, Scotland’s first minister, Nicola Sturgeon, proposed a new referendum, arguing that the largely pro-Remain citizens of Scotland deserve a choice over whether to remain in the EU by leaving the UK. However, May rejected such a vote, which must be approved by London.

Ireland, too, will face a dilemma; it is strongly committed to the EU but economically intertwined with the UK. Ireland’s government has also warned that a Brexit could upend Northern Ireland’s peace settlement and complicate the border between Ireland and Northern Ireland. Some analysts say that the Conservative coalition with the Democratic Unionist Party (DUP), a party from Northern Ireland devoted to maintaining union with the United Kingdom, could push the issue of the Irish land border to the forefront of negotiations.

Elsewhere, Brexit may embolden Euroskeptics by providing a template for leaving.

Elsewhere, Brexit may embolden Euroskeptics by providing a template for leaving, says CFR’s Mallaby. “The younger generation of Italians, Portuguese, and Greeks associate membership of the eurozone, and, by extension, the European Union, with a terrible depression,” he says. That has translated into electoral gains for anti-EU parties, such as the Alternative for Germany, France’s National Rally, and Hungary’s Jobbik. Polling has repeatedly found that a majority of French citizens want their own EU referendum, though the May 2017 French presidential election gave the pro-EU Emmanuel Macron a resounding victory over Euroskeptic Marine Le Pen.

The ultimate fear across the continent is that Brexit could unravel the rest of the EU, especially if the UK economy performs well in its aftermath. Even barring that, Brexit will be a heavy blow to a bloc that has struggled to maintain a united front on issues such as maintaining sanctions on Russia and managing the unprecedented wave of migrants. And, in the wake of 2015 terrorist attacks in Paris, when France invoked the EU’s mutual defense clause for the first time, Brexit threatens Europe’s hopes for a truly common security and defense policy.

Andrew Chatzky contributed to this report.

Recommended Resources

This selection from the Financial Times' archives traces the history of the UK's often contentious relationship with the European Union.

Cameron's reforms were little more than symbolic tweaks to the status quo, but leaving will not make the UK better off, argue R. Daniel Kelemen and Matthias Matthijs in Foreign Affairs.

All of the alternatives to UK membership in the EU come with considerable costs as well as benefits, explains this UK government analysis [PDF].

CFR President Richard N. Haass argues that a Brexit would strain ties between the UK and the United States and weaken Europe in Project Syndicate.

Multinational law firm DLA Piper analyzes the implications of a Brexit on the UK legal and regulatory system, as well as the financial services sector.

Prime Minister Theresa May lays out her vision for a post-Brexit United Kingdom in a January 2017 address

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