Brexit: What could happen next?

Geoff SimmonsEconomics15 Comments

In the wake of the Brexit vote- Britain leaving the European Union – we have had another night of falls in the pound and red ink on stockmarkets around the world.

Some of this reaction is predictable – markets always despise uncertainty. However, is this level of reaction just the pack mentality of the markets or actually based on well founded fears? As this interview with Jesse Mulligan from RNZ explores, the answer really depends on how Britain manages the exit.

In summary there are three basic scenarios for how this could play out:

  1. the cloud cuckoo land scenario is the one Brexit campaigners initially put forward – that Britain could keep free trade but remove themselves from EU regulation and freedom of movement. EU officials have already said this is a no go – if they gave this deal to Britain then the EU would fall apart.
  2. the best case scenario is that Britain negotiates a deal similar to Norway or Switzerland. This would mean they keep mostly free trade and freedom of movement with Europe, but negotiate their way out of specific EU regulations they don’t like (e.g. agriculture and fisheries). In an attempt to calm the markets Boris Johnson has already hinted that he is moving towards this kind of solution. However, this outcome could be seen as a backdown for the Brexit camp.
  3. the worst case scenario is that Britain digs its heels in on controlled migration and ends up getting chucked out of the EU. This would spell disaster for the companies that have their European head office in Britain, and when those companies moved to Europe there would be big job losses in Britain. This option would simply be economic suicide for Britain.

It is the fear of the worst case scenario – or even the EU disintegrating altogether – that markets are reacting against. If Britain takes the sensible route and negotiates a Norway or Switzerland type exit then we are likely to see markets calm down pretty quickly. Of course given negotiations aren’t scheduled to begin until Britain has a new Prime Minister in October, in the short term we face considerable uncertainty which looks like it will tip Britain into recession.

Brexit: What could happen next? was last modified: June 28th, 2016 by Geoff Simmons
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Geoff Simmons

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Geoff Simmons is an economist working for the Morgan Foundation. Geoff has an Honours degree from Auckland University and over ten years experience working for NZ Treasury and as a manager in the UK civil service. Geoff has co-authored three books alongside Gareth.

15 Comments on “Brexit: What could happen next?”

  1. There is a fourth option: that Brexit never happens. There is no majority in parliament for exit. Cameron has already said that he will leave pulling the Article 50 trigger to his successor – which may (or may not) be Boris Johnson. British politics over the next few months are going to be fascinating, and bloody.

    1. I agree on the ‘fascinating and bloody’. But I’ve seen swarms of people in the last day or two talking about how it may never happen – how parliament may simply vote it down.

      All through the campaign it was ‘Cameron may trigger Article 50 the morning after the referendum’. I’ve yet to see *anyone* explain why they suddenly imagine parliament is going to have a say. It *could* certainly – but it definitely doesn’t have to. It doesn’t take an act or vote in parliament – all it takes is a note from the PM to the EU triggering 50. And at that point it’s done. 2 years and out – on whatever terms the EU decides to give them.

      Everyone on both sides agreed to treat the result as binding with no caveats (even if it isn’t binding in the most technical legal sense). Going back on that would be the worst possible outcome; the majority who voted to leave would be incandescent and enough of them would feel sufficiently angry and cheated to mean literal blood on the streets.

      1. Article 50 states that a member state must decide to withdraw from the Union in “accordance with its own constitutional requirements”. In Westminster this means parliament, not the PM alone. It’s entirely conceivable that Brexit fails in the Commons given that the Leave campaign have effectively abandoned every campaign promise (keeping immigration and EU free movement as part of a Norway styled deal, abandoning the supposed £350M for the NHS), and have no concrete plan for what a Brexit Britain looks like.

        1. Where is that written Jeff? Through the entire campaign it was widely stated that Cameron might trigger Article 50 the morning after the referendum as I said. And it was never questioned that he had that authority. Even in his speech the morning after he said that HE had decided not to invoke article 50 yet; no reference to parliament.

          Suddenly with an unexpected ‘leave’ result people are inventing the idea that parliament has to send the notification where that was never the case before? – I’m not buying that without the clearest of supporting evidence. It doesn’t NEED reference to parliament because – apart from everything else! – ALL parties had agreed to treat the result as binding. Heck we *could* have had the returning officer who announced the final national result send the note!

      2. The sovereignty of parliament is absolute. No referendum is binding. This is why referendums are so silly. In the Westminster system the only referendum that should ever be held is a general election. The best solution in this particular case is for Her Majesty to dismiss the government, dissolve parliament and for a general election to be held. Let the parties declare where they stand: In or Out. And let the best party win.

        1. That can only happen in the event of a lost confidence vote OR a vote of 2/3 of the commons to call an election. Those are the only circumstances in which parliament can be dissolved early.

          See my reply to Jeff below as to why parliament is irrelevant here.

  2. already Scotland and Northern Island are making noises that they wish to remain within the EU and will leave the UK if necessary. Continental countries are approaching UK based manufacturing and saying that relocation assistance packages are available to move to be nearer the markets. The EU bankers have now placed a target on the city of London. Large numbers of poms living on the continent are applying for citizenship within their country of residence. Anybody with half a brain could see this playing out, this has the potential to unravel the EU as others such as Greece with real grievances leave giving the one finger salute to their baleout debts to Germany et al. , then the whole edifice unravels. Who wants to step up and take the poison chalice that PM has now become – they will be dammed what ever they do.

  3. Even before Brexit an international stock broker wrote that if they decide to exit London could lose its status as worlds financial hub which could lead to property price crash?. Possible?
    British still think they are masters of the world and they can negotiate the terms before even staring the article50 process. Even the exit camp seem to have second thoughts.
    One of their ministers want to put the terms of divorce to the people.That process could long time. The uncertainty will continue. Will the pound be worth the paper it is printed on, There will be capital flight from the country.

  4. Now that the Brexit brigade have their (non binding) win they must hand the whole deal over to the very people who were pushing Remain to get all the paper done. So the MP’s will most likely argue for months about the merits of this and that and these and absurd issues like they do and months down the track will fail to pull the exit pin. Or maybe they might go through with the Brexit (but I doubt it). One thing we can be sure of is the Rich will end up Richer and the poor will end up poorer. And the US will blunder through more ‘FREE’ Trade Deals with EU and UK that are to the (mostly US) Rich Corporations Gross Advantage and GMO food regulations will be the biggest losers.

    1. Where have you got the idea that MPs have to have a say? David Cameron could have notified the EU under article 50 the morning after the vote – as he had said he might. But he doesn’t want to lead the negotiations so HE decided not to; he’s leaving that to his successor. He or she *could* decide to consult parliament – but they absolutely don’t have to; where is it written that they must??

      The referendum is non-binding in the strictest technical legal sense; in practice *everyone* on both sides agreed beforehand to treat it as binding; it’s politically inconceivable not to implement the result.

      1. Where have you got the idea from; that polititians will stick to what they may or may not have said ? ? ? ‘Politically inconceivable’s are right now being conceived in all the darkest dirtiest corners of the halls of power – world wide. That is what they do! It is ‘politically inconceivable’ that the EU would rush in this instance to be rid of Britian as fast as possible but in a similar past circumstance cling to the indebted Greece they destroyed with a very grim deathgrip.

        1. AFAIK there is NO mechanism for the EU to ‘get rid of Britain’; the article 50 exit procedure can only be triggered by the state seeking to depart. I won’t be dogmatic and say there’s NO mechanism by which the EU can expel a ‘rogue state’ against their wishes – but I’m certainly not aware of any. And Cameron has made clear – again – today following his EU Council meeting that the decision on when to trigger Article 50 is entirely one for the prime minister; the referendum has given them all the necessary mandate. I’m not hearing anyone apart from a few pundits contradicting that long-accepted position.

          I don’t believe there’s any constitutional mechanism for parliament to bind or control a prime minister – short of his or her party unseating them as PM – or a vote of no confidence unseating the entire government.

  5. Last I heard of PM Cameron he was over in the EU trying to explain to the ‘ignorant’ Germanic members that 99% of his own illiterate ignorant racist unemployable Brexit voters did in fact vote on not Leaving the EU, but thought that a Brexit win would trigger Europe taking back all the UK darkies and even those whities wot spoke Inglush with a darkie accent and make Britain Great Again and the Royal hive fit for requeening. Now what kind of foreplay is that to use when leaving a 40 year marriage? The pigeon keeps throwing itself into the bewildered cattery.

  6. The British Parliament needs to vote to exit the EU –
    But is even that enough?
    I have heard that the acts that created the devolved Parliaments in Scotland and in Northern Ireland are worded in such a way that BOTH of those Parliaments would need to vote YES as well – and that is NOT going to happen

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