Europe continues to progress while the ‘United’ Kingdom falls apart

Brexit will bring much damage to Australia and to global economic growth as a whole.

A Scottish piper plays for tourists in front of Big Ben in central London

Brexit will bring much damage to Australia and to global economic growth as a whole.

What was predicted by sources as diverse as the OECD, G7 and, more locally in Australia, former deputy PM and trade minister Tim Fischer and others, has shifted into reality. Uncertainty has hit markets and it is likely that the pound sterling will not recover for some time. But the impacts are not restricted to this.

With the vote made, political uncertainty should best be contained and Britain move fast towards a new status. European Union leaders are calling for a quick “divorce” but exit negotiations will take some time.

The resignation of Prime Minister David Cameron may result in an unnecessary and unwelcome wait until he’s replaced in October. However, it is in his hands to activate Article 50 swiftly, and to commence the talks. This remains well within his responsibilities, given his political survival was tied to the referendum for years. He carries much responsibility and needs to accept the consequences of his power games. Starting the two-year period of exit negotiations, during which member states agree or veto conditions, is crucial.

Article 50 will trigger the start of formal exit negotiations over the terms and conditions of Britain’s exit. European leaders are keen for this to start as soon as possible to contain the damage on a political, economic, social and security level.

Britain must start negotiating the future status of its relationship with continental Europe and the rest of the world. Autonomy from the EU means it will not be able to count on the negotiating power of 28 countries in multilateral negotiations with bodies such as the World Trade Organisation, or in talks over a Free Trade Agreement with Australia.

In regards to free trade negotiations, the benefits that the EU-Australia FTA will deliver will accentuate the disadvantage to both the British and non-EU organisations in Britain.

There are 1500 Australian companies based in Britain that use it as their springboard into the single market. They have their transition plans ready and some have demerged from British counterparts. Negotiations on the FTA were expected to start in early 2017 but may experience some delay to assess the specific conditions that will be negotiated without Britain.

This FTA will take shape while Britain is in the midst of negotiating a new relationship with the EU, uncoupling policies and legislation from EU law and negotiating new bilateral ties with the remaining 27 EU countries and the rest of the world. It will have to negotiate new conditions for each component it delivers into the global value chains, each tariff or non-tariff condition it had benefited from via the EU.

It may struggle to retain foreign (non-EU) investment into Britain and redefine those funding sources that are directly or indirectly linked to the EU. Financial services, constituting 80 per cent of the British economy, will be exposed to longer-term uncertainty, and containment will be in this crucial sector.

Britain will also be negotiating internally. If Brexit was about autonomy from EU decisions, then Britain has to decide what legislation will apply in the future, including drafting and adopting new laws. What financial and economic regulations will apply? How to support the City of London in the transition? What status to provide its many EU and other foreign residents? What access to the single market will still be possible and accepted by the EU? How to align to other political and economic structures in the world? How to deal with exit from the EU’s multiple trade agreements and their favourable conditions negotiated across the world? At the same time, Scotland and Northern Ireland are likely to plan for a vote of their own people on leaving Britain.

In a nutshell: politicians, lawyers and consultants will be busy and prosperous.

Inside the EU, defence, migration, foreign and security policies and closer co-operation will go ahead without Britain. Mechanisms in the transition period of Britain’s exit need to be negotiated. Britain will continue to abide to the current body of EU legislation, yet will no longer have a role in decision-making.

Some speculate that this will be the end of the EU and European integration. This will not happen — rather, we will see a more integrated and more diverse Europe, a more open and dynamic Europe. Having Britain out of the way can only be to the benefit of federalism. The question is rather: Will the “United Kingdom” survive?

Professor Gabriele Suder is Principal Fellow at the Melbourne Business School, The University of Melbourne.