Negotiating Britain’s New Relationship With Europe

Negotiating Britain’s New Relationship With Europe

After the shocking outcome of Thursday’s “Brexit” referendum, in which 52 percent of UK voters opted for leaving the EU, European leaders said they “regretted, but respected” the decision by the British public, but urged London to begin the unprecedented process of exiting the union sooner rather than later, in order to minimize the economic and political uncertainty engendered by the vote. If the UK wants a divorce, in other words, Europe wants it done quickly. The 27 remaining EU members will meet next week to chart a course for their post-Brexit future, but what is already clear is that European leaders are not happy, and not prepared to cut the UK any slack, the Guardian reports:

Manfred Weber, the chairman of the European People’s party group of centre-right parties in the European parliament, stressed that Britain had crossed a line and there was no going back. The vote “causes major damage to both sides”, Weber said. “Exit negotiations should be concluded within two years at max. There cannot be any special treatment. Leave means leave.” …

While the UK – the first sovereign country to vote to leave – would remain a member until exit negotiations were concluded, they said, Europe expected it to “give effect to this decision … as soon as possible” by triggering article 50 of the Lisbon treaty, which is effectively Britain’s formal letter of resignation. …

The UK has to negotiate two agreements: a divorce treaty to wind down British contributions to the EU budget and settle the status of the 1.2 million Britons living in the EU and 3 million EU citizens in the UK; and an agreement to govern future trade and other ties with its European neighbours. [European Council president Donald] Tusk has estimated that both agreements could take seven years to settle “without any guarantee of success”. Most Brussels insiders think this sounds optimistic.

Prime Minister David Cameron, who had called the referendum and campaigned for Remain in hope of squelching Euroskepticism with a resounding vote to stay in the EU, resigned first thing Friday morning and said his successor should be the one to initiate article 50 proceedings and negotiate the terms of Britain’s exit. He will remain in office until the fall but expects his Conservative party to have a new leader in place in time for its conference in October.

Former London mayor Boris Johnson, a high-profile Brexit supporter and a leading candidate to succeed Cameron, took a very different tone from Brussels regarding the pace of the coming negotiations:

The former mayor of London insisted on Friday there was “no need for haste” in negotiating Britain’s exit. Speaking at Vote Leave’s headquarters, Johnson struck a statesmanlike tone, paying tribute to Cameron’s leadership. “This does not mean that the UK will be in any way less united; nor indeed does it mean that it will be any less European,” he said.

Whatver deal the UK and EU eventually strike could take several forms, depending on how the negotiations proceed and who is leading them. One possible outcome is that the UK, like Norway, remains part of the European Economic Area, maintaining access to the single market and the free movement of labor, and still contributing to the EU budget—in other words, not much change in how the UK does business with other European countries. It is not clear at this point, however, that the EU will allow Britain to get off with such an easy deal: European leaders may want to ensure that the UK suffers a penalty for leaving the union, in order to discourage other countries from doing the same. Meanwhile, Leave supporters such as Johnson had campaigned on a promises of tightening immigration controls and no longer having to pay millions of pounds a week to the EU. It is hard to see how Brexiteers could keep these promises under the Norwegian model.

The other options for the UK going forward are to negotiate a new, unique arrangement with the EU—that’s the seven-year scenario Tusk fears—or to trade with the EU under World Trade Organization rules, which would be a simpler process but would forfeit the favorable trade ties the UK currently enjoys with European countries.

In any case, clarity will not come quickly, and this leaves British businesses with many unknowns to contend with. As Bloomberg notes, one of the biggest questions is what will happen to the UK’s substantial European expatriate workforce:

Chain operators like Whitbread Plc, lodging groups like InterContinental Hotels Group Plc and retailers like J Sainsbury Plc are all heavily dependent on European workers: almost three-quarters of workers in the hospitality sector in London are foreign-born.

With the Leave campaign promising to end the free movement of European citizens “by the next election,” the hospitality and retail sectors will have to find ways to attract British staff, perhaps by paying higher wages. How fast that has to occur will depend on what happens to EU citizens already resident in Britain.

While U.K. Independence Party leader Nigel Farage has said those living in the country now should be allowed to stay, no one yet knows what the criteria will be and implementation of the new rules will depend entirely on future legislation.

For a full run-down of what Brexit may mean for business in terms of talent, check out our explainer on the subject. For our continuing coverage, head here.