It's your support that makes the difference.
We drive change in Europe.
Following the unexpected decision of the UK public to vote to Leave the EU, Open Europe's Raoul Ruparel sets out Open Europe's snap response to the results and argues that now is not the time for rash decisions but careful thought.
24 June 2016
In a huge political upset, the UK has spoken and the decision is to leave the EU, with 17.4m votes (51.9%) in favour of Leave compared to 16.1m (48.1%) in favour of Remain. Turnout was higher than expected at 72.2%. There is no doubt this vote will change both the UK and Europe. However, at this stage it is impossible to say much with certainty. Now is a time for reflection and cool heads. The UK first needs to examine what it wants both in terms of domestic politics and its relationship with the EU.
Overall, the map of the UK is much as we expected – the areas that were expected to back Remain – London and most of its surroundings, university towns, Scotland and Northern Ireland – mostly did so. Likewise, the areas that were expected to back Leave – the East of England and former Labour heartlands in the Northern England and South Wales – did so as well. There were a handful of shocks, mainly in areas that had been expected to back Remain such as Birmingham, Southampton, Swansea, Canterbury and Watford. Unlike Leave’s established strongholds, these cannot on the whole be described as ‘left behind’ areas characterised by higher unemployment, lower educational qualifications, a predominance of older voters and stronger support for UKIP.
Nonetheless, the referendum was not decided in a number of select swing areas – as during parliamentary elections – but by the margin of both sides’ respective victories. Early indicators of this were Leave’s victory in Sunderland – 61.3% to 38.7% on a turnout of 64.8% – and Remain’s victory in Newcastle – 50.7% to 49.3% on a turnout of 67.6%. Both headlines outcomes were expected in the event of a close overall result but the scale took most by surprise. This pattern was repeated across much of the county with Remain’s huge advantage in London and Scotland not enough to overcome its losses elsewhere.
The initial focus will be on who will be in charge in the UK. While Prime Minister David Cameron has suggested he would stay even in the event of a Leave vote – and even received support from 86 Conservative MPs on the Leave side – this looks unlikely. Whether he resigns or is pushed remains to be seen but we expect a change within a few days. A caretaker PM and government will be put in place while the Conservative Party leadership campaign takes place. Until this new government is in place (likely not fully before end of summer) there is unlikely to be much movement in practical terms. Civil servants will continue to draw up negotiating strategies and plans to present once a new government is in place.
Beyond the initial leadership issues, there are wider ramifications. The result poses some significant challenges in terms of its regional and social cleavages. Most obviously, two of the UK’s four constituent nations – Scotland and Northern Ireland – as well as Gibraltar voted to Remain. All of these present specific challenges. In Scotland, Remain won by 62% to 38% (on a 67% turnout) sweeping all of Scotland’s 32 counting areas prompting Scottish First Minister Nicola Sturgeon to invoke the prospect of a second referendum (although there are a number of practical obstacles to this). There could also be constitutional complications – Holyrood may have to approve the repeal of the 1972 European Communities Act as it is baked into the Scottish devolution settlement. Equally in Northern Ireland there was a split between unionist and nationalist voters which could prove destabilising –Deputy First Minister Martin McGuinness of Sinn Fein has already called for a dedicated referendum on the future of the border between Northern Ireland and the Republic.
In terms of the social divide, the result poses challenges for all parties but above all Labour which appears very badly divided between its liberal urban voters and its traditional voters in other areas of the UK. Labour leader Jeremy Corbyn’s fate will also be subject to much speculation – his ‘sceptical Remainer’ position clearly failed to convince enough Labour voters and his unambiguously pro-immigration position was clearly also out of sync with public opinion. The weakness of Labour may prompt the Tories to call a general election in order to take advantage.
We have already begun to see signs with the pound falling to a 30 year low against the US Dollar. Asian stock markets have fallen overnight while European markets are expected open down sharply. Broadly we’d expect significant uncertainty and volatility over the coming days until things settle down. The Bank of England, along with other central banks, will work to try to calm markets and provide liquidity in all currencies. The BoE lacks significant foreign exchange reserves to intervene to support the currency significantly. Coordinated exchange market intervention from a number of central banks remains an outside possibility as does halting trading on UK markets if declines get large enough on initial market openings.
At some point the sharp decline in the value of Sterling combined with a fall in the price of UK assets could well lead to a buying opportunity, particularly in the eyes of institutional and foreign investors. As we have laid out before, the negotiations could take a number of years – a clear negotiation strategy and plan will be needed to help quell uncertainty over the medium term.
With the surprise result now is not the time for rash decisions but careful thought. A few months at least will be needed to figure out the domestic political situation and to allow any new government to work with the Civil Service to draw up a negotiating strategy. We have outlined what we believe to be the liberal, free market plan for leaving the EU and the primary way to allow the UK to prosper outside the EU. Clearly, when it comes to future negotiations with the EU, the biggest challenge will be to balance the British electorate’s desire for greater controls on EU immigration against continued open access to the EU’s single market.
The only formal process for leaving the EU comes through Article 50 of the Treaty on European Union (TEU). But with the surprise result now is not the time for rash decisions but careful thought. The idea that Article 50 would be triggered immediately was always nonsense. There is no legal obligation to trigger it immediately and it would be politically unwise to do so until there is an established negotiating position. UK negotiators might seek to sound out EU governments before triggering Article 50, but whether other states or the EU as a whole would countenance an informal negotiation is unclear, particularly as different countries might have different views. There is no obligation for the rest of the EU to begin negotiations on leaving until Article 50 has been triggered – and ultimately the ticking clock could give the EU an upper hand in the negotiations (likely a deliberate part of the design) as it would control the timetable.
Under Article 50, the government of the withdrawing state notifies the European Council of its wish to leave. This triggers the negotiation process around the transitional arrangement and also any future arrangement between the EU and the leaving state. Two years is allotted for the negotiations, during which all EU laws continue to apply to the leaving state. If no agreement is reached after two years, all EU rules and rights cease to apply to the withdrawing country – unless the period is extended by unanimous agreement of the other 27 states. The leaving country is not part of any discussions around the agreement and is essentially presented with a take-it-or-leave-it offer at the end of the negotiations. Any trade deal must also be approved by the European Parliament. The deal can be approved by qualified majority vote, unless it is seen to be a ‘mixed agreement’ (which seems likely), which means it would need to be approved by all member states.
As we explained on our blog, the next 18 months could see Europe becoming a very different place. In a few days Spain will go to the polls with the outcome uncertain – a minority government or an unstable leftist coalition look distinct possibilities. Italy hold a referendum on constitutional reform in October on which Prime Minister Matteo Renzi has stake his political future – and the polls are narrowing. Then next spring France will hold Presidential elections where Front National’s Marine Le Pen is expected to get into the second round. Finally next autumn Germany holds federal elections. Amid all of this questions over how the EU will deal with the migration crisis and what the next steps for the Eurozone will be loom large. This makes the political climate in which any leave negotiations are taking place more uncertain.