{"id":3233,"date":"2016-06-01T00:00:00","date_gmt":"2016-06-01T00:00:00","guid":{"rendered":"http:\/\/localhost\/CouncilOfCouncil\/global-memo\/brexits-consequences-for-the-uk-and-the-eu\/"},"modified":"2025-10-09T16:41:15","modified_gmt":"2025-10-09T16:41:15","slug":"brexits-consequences-for-the-uk-and-the-eu","status":"publish","type":"global-memo","link":"https:\/\/www.cfr.org\/councilofcouncils\/global-memo\/brexits-consequences-for-the-uk-and-the-eu\/","title":{"rendered":"Brexit&#8217;s Consequences For the UK\u2014and the EU"},"content":{"rendered":"<p>On June 23, 2016, the United Kingdom will hold a referendum on whether it should remain in the European Union or leave. A British exit, or \u201cBrexit,\u201d could have serious economic and political consequences for both the UK and the rest of the EU. Such an exit is a distinct possibility, with <a href=\"https:\/\/ig.ft.com\/sites\/brexit-polling\/\">polling<\/a> demonstrating a close race.<span style=\"line-height: 15.6px\">\u00a0<\/span><\/p>\n<p>Should Brexit become a reality, the UK&#8217;s post\u2013referendum trajectory will depend on whether the transitional period is a flexible but orderly exit carried out in a spirit of partnership with the EU, or whether the split is acrimonious and messy, without properly tying up all the legal loose ends. In a scenario in which pragmatism prevails over resentment, economic and financial tensions could be limited by London and Brussels negotiating an amicable separation agreement. However, broader political considerations, including the EU&#8217;s desire to avoid further departures by making an example of the UK, might lead to a far more damaging outcome for all parties.<\/p>\n<p><strong style=\"line-height: 15.6px\"><em>Impact on the UK<\/em><\/strong><\/p>\n<p><span style=\"line-height: 15.6px\">Shortly after a vote to leave, the UK would probably trigger the voluntary withdrawal procedure foreseen in the <\/span><a style=\"line-height: 15.6px\" href=\"http:\/\/www.lisbon-treaty.org\/wcm\/the-lisbon-treaty.html\">EU&#8217;s 2009 Lisbon Treaty<\/a><span style=\"line-height: 15.6px\">, which allows for a two-year period to reach a separation agreement. Without such an agreement, the UK\u2014which currently enjoys unrestricted access to the rest of the EU under the <\/span><a style=\"line-height: 15.6px\" href=\"http:\/\/ec.europa.eu\/growth\/single-market\/index_en.htm\">Single Market<\/a><span style=\"line-height: 15.6px\"> rules\u2014would revert to the default trade arrangement with the EU, based on World Trade Organization (WTO) rules.<\/span><span style=\"line-height: 15.6px\">\u00a0<\/span><\/p>\n<p>Under the latter scenario, the EU would apply its external customs duties to UK goods. It could also introduce non-tariff hurdles for goods (such as technical standards) and especially services (including licenses). Brussels would also be able to restrict London\u2019s ability to conduct euro transactions and euro-derivatives transactions, and thereby undermine the position of the city as a financial center. UK citizens could also lose their automatic right to work in the rest of EU. What&#8217;s more, the EU\u2019s new external border would divide Northern Ireland from the rest of the island and could thereby <a href=\"http:\/\/www.theguardian.com\/politics\/2016\/jan\/25\/northern-ireland-irish-republic-eu-referendum-enda-kenny\">jeopardize<\/a> the peace agreement.<\/p>\n<p>Even in the event of a more amicable separation, there would still be multiple adverse impacts on the UK. Regarding the economic impact, an overwhelming majority of serious <a href=\"https:\/\/www.gov.uk\/government\/publications\/hm-treasury-analysis-the-immediate-economic-impact-of-leaving-the-eu\">analyses<\/a> from <a href=\"https:\/\/www.gov.uk\/government\/publications\/hm-treasury-analysis-the-long-term-economic-impact-of-eu-membership-and-the-alternatives\">government<\/a>, <a href=\"https:\/\/www.global-counsel.co.uk\/analysis\/special-report\/brexit-impact-uk-and-eu\">business organizations<\/a>, <a href=\"http:\/\/www.cer.org.uk\/publications\/archive\/report\/2016\/economic-consequences-leaving-eu-final-report-cer-commission-brexit\">think tanks<\/a> and <a href=\"http:\/\/cep.lse.ac.uk\/pubs\/download\/EA022.pdf\">academia<\/a> from within the UK, as well as from the <a href=\"https:\/\/www.imf.org\/external\/np\/ms\/2016\/051316.htm\">International Monetary Fund<\/a> and <a href=\"http:\/\/www.oecd.org\/economy\/the-economic-consequences-of-brexit-a-taxing-decision.htm\">Organization for Economic Co-operation and Development<\/a>, converge on the following propositions:<\/p>\n<ul>\n<li>\n<p><strong>Reduced EU Market Access.<\/strong> The UK\u2019s access to the EU Single Market would be less complete than under the status quo. All existing <a href=\"https:\/\/www.gov.uk\/government\/uploads\/system\/uploads\/attachment_data\/file\/504604\/Alternatives_to_membership_-_possible_models_for_the_UK_outside_the_EU.pdf\">alternatives<\/a> (PDF) to EU membership have drawbacks. The Norwegian model\u2014membership in the European Economic Area\u2014would assure full market access, but is politically implausible for the UK since it would mean a loss of <a href=\"http:\/\/www.cfr.org\/united-kingdom\/debate-over-brexit\/p37747\">sovereignty<\/a> due to the need to accept EU legislation without being able to influence the substance of the rules at the EU Council\u2019s negotiating table. Switzerland&#8217;s model of negotiating multiple separate sectoral agreements with the EU is considered <a href=\"http:\/\/www.bbc.com\/news\/uk-politics-eu-referendum-35615604\">attractive<\/a> by some Brexiteers, but would simply not be on offer from the <a href=\"http:\/\/www.wsj.com\/articles\/britain-eyes-switzerlands-arms-length-relationship-with-europe-1455222486\">EU side<\/a>. Indeed, the so-called \u201cSwiss cheese\u201d model has <a href=\"http:\/\/www.ft.com\/intl\/cms\/s\/2\/7e0bce28-dbda-11e5-a72f-1e7744c66818.html#axzz48GV6sp9s\">broken down<\/a> over issues of immigration and is severely criticized by politicians and officials in EU circles as \u201ccherry-picking.\u201d In addition, both Norway and Switzerland must allow free movement of EU citizens, a primary <a href=\"http:\/\/www.cfr.org\/united-kingdom\/debate-over-brexit\/p37747\">concern<\/a> of those in the Leave camp.\u00a0 The enhanced free-trade arrangements like that <a href=\"http:\/\/www.international.gc.ca\/trade-agreements-accords-commerciaux\/agr-acc\/ceta-aecg\/index.aspx?lang=eng\">recently agreed<\/a> between the EU and Canada offer little under services, which are a major portion of the UK economy.<\/p>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<p><strong>Damage to Trade Ties.<\/strong> The UK\u2019s trade relationships with the rest of the world, beyond membership in the WTO, would also be subject to huge uncertainties. All of the EU\u2019s existing preferential agreements with other countries around the world would cease to apply to the UK, and it would be a long and messy process to reconstitute them on a bilateral basis. As for the EU\u2019s ongoing negotiations for new trade deals\u2014for example with the United States, India, and Japan\u2014the UK would not benefit from a faster inside track on these bilaterally. U.S. President Barack Obama and Democratic presidential hopeful Hillary Clinton have made it clear that the UK would be sent to the \u201c<a href=\"http:\/\/www.bbc.com\/news\/uk-36115138\">back of the queue<\/a>\u201d for trade deals with the United States, an indication of the potential damage to the &#8220;special relationship&#8221; between the UK and the United States.<\/p>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<p><strong>Risks to London.<\/strong> Domestically, the UK risks damaging all three of its economic &#8220;<a href=\"http:\/\/infacts.org\/jeopardise-uk-economys-3-crown-jewels\/\">crown jewels<\/a>,&#8221; namely London\u2019s position as a financial center, its large service sector trade with the EU, and its prime location as a destination for foreign direct investment aimed at the EU market. The UK is already suffering a number of negative macroeconomic impacts as a result of the uncertainty surrounding the referendum, including <a href=\"http:\/\/www.ft.com\/intl\/cms\/s\/0\/7ee78420-c5b6-11e5-b3b1-7b2481276e45.html#axzz48GV6sp9s\">exchange rate depreciation<\/a> and dented <a href=\"http:\/\/uk.reuters.com\/article\/uk-britain-economy-idUKKCN0XP35I\">business confidence<\/a>.<\/p>\n<\/li>\n<\/ul>\n<p>Though the full extent of the economic impact depends on many factors, including the eventual trade arrangement between the UK and the EU, most economists <a href=\"http:\/\/www.ft.com\/intl\/cms\/s\/2\/1a86ab36-afbe-11e5-b955-1a1d298b6250.html#axzz48GV6sp9s\">agree<\/a> that it would clearly be negative. Indeed, eager to avoid setting a precedent, EU member states more inclined toward integration, such as Germany, Italy, Spain, Belgium, and Luxembourg, would likely seek to impose tough terms for the separation agreement with the UK.<\/p>\n<p>Regarding the future of the UK itself, a Leave vote could lead to a prolonged period of political instability. Politicians\u2019 heads would roll, beginning with Prime Minister David Cameron but also including other leaders in the Tory party who campaigned against Brexit. The split in the Conservative party would deepen, and new general elections might be called. Brexit could also undermine UK unity by potentially triggering a fresh referendum over <a href=\"http:\/\/www.bloomberg.com\/news\/articles\/2016-05-02\/it-s-not-just-brexit-scottish-independence-is-back-in-play\">Scottish independence<\/a>, reinvigorating Welsh nationalism, and dividing the more pro-EU London and southeast regions against the more eurosceptic Midlands and north.<\/p>\n<p>From an international perspective, there is not a single voice among the UK\u2019s friends in Europe, the Commonwealth, or the world at large that support the idea of Brexit. The EU has acted as a &#8220;multiplier&#8221; for the UK\u2019s foreign and security policy interests throughout the world, backed by the weight of the EU\u2019s Single Market and the wide range of EU foreign policy tools, as well as its <a href=\"https:\/\/www.gov.uk\/government\/uploads\/system\/uploads\/attachment_data\/file\/227437\/2901086_Foreign_Policy_acc.pdf\">perceived neutrality<\/a> (PDF). Secession would thus reverse that effect, reducing the UK&#8217;s global influence.<\/p>\n<p><strong><em>Impact on the EU<\/em><\/strong><\/p>\n<p>Some <a href=\"http:\/\/www.bloomberg.com\/news\/videos\/2016-04-08\/roubini-warns-brexit-could-bring-end-of-european-union\">argue<\/a> that Brexit would lead to the collapse of the EU, but this is highly unlikely. The web of socioeconomic ties between the remaining member states has been woven so intricately and deeply over the past six decades that Brexit would not unravel the fundamental post\u2013World War II order in Europe.<\/p>\n<p>But unfortunately for the rest of the EU, the consequences of Brexit would not be limited to the UK. Brexit would fan the flames of <a href=\"http:\/\/www.ecfr.eu\/page\/-\/ECFR79_EUROSCEPTICISM_BRIEF_AW.pdf\">growing anti-EU sentiment<\/a> (PDF) in Europe, emboldening nationalist and eurosceptic movements, and leading to a retreat from EU-level solutions to cross-border challenges. Brexit may also boost a new generation of nationalist leaders (most likely in France, Hungary, and Poland) to copycat the &#8220;<a href=\"http:\/\/www.ft.com\/intl\/cms\/s\/0\/3ca31b7e-a5a4-11e5-97e1-a754d5d9538c.html#axzz48GV6sp9s\">blackmail tactics<\/a>&#8221; employed by David Cameron to obtain concessions from the rest of the EU. Hungarian Prime Minister Viktor Orban has already emulated these tactics by calling for a national referendum in the hope of obtaining a popular mandate so as to better resist attempts by the European Commission to accept its quota under a new refugee relocation scheme.<\/p>\n<p>In addition, by removing a major power from the EU, Brexit would increase the already predominant influence of Germany in the Union. This in turn could heighten tensions in countries suspicious of Berlin\u2014including France, where Marine Le Pen and her far-right National Front party have gained strength ahead of the 2017 presidential elections. Germany and its like-minded partners in the EU would nevertheless try to put the house together again with renewed integration initiatives to counter the reputational damage of UK secession. Rhetorical resolve would be immediately forthcoming, but real action would be delayed as Germany will be caught up in its own national election in 2017.<\/p>\n<p>How might Brexit impact on EU policies? There are four likely areas of change: the euro currency system, the EU\u2019s budget and liberalization, the nexus of immigration and border management, and foreign and security policy more broadly.<\/p>\n<ul>\n<li>\n<p>First, in the wake of a Brexit, there is a risk that the euro will <a href=\"http:\/\/www.ft.com\/intl\/cms\/s\/0\/a75fc5ae-16c7-11e6-9d98-00386a18e39d.html?siteedition=intl#axzz48GV6sp9s\">depreciate<\/a>. In the longer run, however, the eurozone would have more power to drive economic and financial policy in the EU. France, Germany, and Italy all say they want to make the euro system more robust on the fiscal side, but behind this simple statement the disagreements are profound, with Italy wanting eurobonds, Germany blocking anything that smacks of a transfer union, and France making speeches about the need for an EU \u201cfinance minister.\u201d Progress toward a capital markets union would also continue, although at a slower pace and in a different direction from London\u2019s preferred approach. Some major U.S. banks have already declared that they might relocate their European branches from London to Europe.<\/p>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<p>Second, without the UK, the EU budget would have to do without the UK\u2019s <a href=\"http:\/\/www.parliament.uk\/briefing-papers\/SN06091.pdf\">10.5 billion<\/a> euros net annual contribution. This would certainly require a thorough review of budget allocations and revive a debate about raising new resources for the EU.\u00a0<span style=\"line-height: 15.6px\">Also, the weight of the \u201ceconomically liberal\u201d bloc in the EU (currently the UK, the Netherlands, Sweden, Denmark, and Estonia) would decline. Because of this, pundits have suggested that a post\u2013Brexit EU would probably become more protectionist, yet there has been a growing consensus across the Union in favor of liberalizing internal markets in goods, services, and labor.<\/span><\/p>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<p>Third, on the immigration front there is much to be done. The <a href=\"http:\/\/www.bbc.com\/news\/world-europe-34131911\">refugee crisis<\/a> of the past year has clearly demonstrated that the EU needs to move towards a centralized border control and asylum mechanism. Although such momentous moves are unlikely in the foreseeable future, the need for common action will only increase as migration pressure from Africa is added to the current movements from the wider Middle East, creating an ever-bigger challenge. At the same time, a Brexit would reduce the EU&#8217;s ability to tackle cross-border organized crime and transnational terrorism, unless new coordination and cooperation mechanisms can be established with the UK.<\/p>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<p>Finally, foreign and security policy would perhaps be the least fraught areas. It is undeniable that Brexit would seriously threaten the EU\u2019s global standing and soft power status, its ability to play a greater role on global security issues, and the likelihood of concluding the Transatlantic Trade and Investment Partnership (TTIP) trade deal with the United Sates before the end of President Obama\u2019s term. On the other hand, EU decision-making without the historically &#8220;unruly&#8221; UK would become simpler and lead to a more truly <em>common<\/em> <a href=\"http:\/\/eeas.europa.eu\/cfsp\/index_en.htm\">Common Foreign and Security Policy<\/a>. Indeed, without the UK, there would be less opposition to the establishment of a permanent structure for defense cooperation, with more pooling and sharing of capabilities, more cooperation on defense planning, and the creation of a single military headquarters in Brussels.<\/p>\n<\/li>\n<\/ul>\n<p>Brexit would not only be bad for the UK, but would also be on balance bad for the EU. Both parties could waste years negotiating a new relationship. At a time when the post\u2013World War II international order is under strain and Europe&#8217;s societies are increasingly threatened by protectionism, it is abundantly clear that the EU needs more than ever to be able to resolutely face the big global challenges. But if the Remain vote prevails on June 23, the EU could be strengthened on multiple fronts\u2014internally, through further liberalization of the single market, and externally, as a robust pillar of a liberal order in an increasingly hazardous and chaotic world.<\/p>\n","protected":false},"featured_media":7082,"template":"","memos-category":[],"class_list":["post-3233","global-memo","type-global-memo","status-publish","has-post-thumbnail","hentry"],"acf":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.cfr.org\/councilofcouncils\/wp-json\/wp\/v2\/global-memo\/3233","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cfr.org\/councilofcouncils\/wp-json\/wp\/v2\/global-memo"}],"about":[{"href":"https:\/\/www.cfr.org\/councilofcouncils\/wp-json\/wp\/v2\/types\/global-memo"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.cfr.org\/councilofcouncils\/wp-json\/wp\/v2\/media\/7082"}],"wp:attachment":[{"href":"https:\/\/www.cfr.org\/councilofcouncils\/wp-json\/wp\/v2\/media?parent=3233"}],"wp:term":[{"taxonomy":"memos-category","embeddable":true,"href":"https:\/\/www.cfr.org\/councilofcouncils\/wp-json\/wp\/v2\/memos-category?post=3233"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}