The Brexit has be­gun: Now what?

The United King­dom's for­mal trig­ger­ing of the Brexit sets in mo­tion a com­plex process that will in­clude the terms of its de­par­ture from the Euro­pean Union as well as the sta­tus of its fu­ture trade re­la­tion­ship with the bloc.

Financial Nigeria Magazine - - Con­tents - By Strat­for “The Brexit Has Be­gun: Now What?” is re­pub­lished with the per­mis­sion of Strat­for, un­der con­tent con­fed­er­a­tion be­tween Fi­nan­cial Nige­ria and Strat­for.

Un­til now, the Brexit had mostly been a suc­ces­sion of pub­lic state­ments, dec­la­ra­tions of in­tent, veiled threats and wish­ful think­ing. But on March 29, the Bri­tish gov­ern­ment made the United King­dom's de­par­ture from the Euro­pean Union man­i­fest by of­fi­cially in­vok­ing Ar­ti­cle 50 of the EU treaty and de­liv­er­ing for­mal no­ti­fi­ca­tion of its de­par­ture from the Con­ti­nen­tal bloc, the first mem­ber ever to do so. This started the clock on ne­go­ti­a­tions over the terms of the di­vorce and their fu­ture re­la­tion­ship, which will leave both the United King­dom and the Euro­pean Union con­sid­er­ably changed.

Af­ter months of buildup, the early weeks of the Brexit process will be rather un­re­mark­able. Be­fore con­ver­sa­tions be­tween the two sides can start, the Euro­pean Union will have to de­fine its own ne­go­ti­a­tion strat­egy. The bloc's re­main­ing 27 mem­bers will spend the com­ing weeks dis­cussing their pri­or­i­ties for the ne­go­ti­a­tions be­fore hold­ing a sum­mit on April 29 and giv­ing the Euro­pean Com­mis­sion a man­date to ne­go­ti­ate with Lon­don on their be­half. The first top­ics of the Brexit ne­go­ti­a­tions will prob­a­bly in­clude Bri­tain's fi­nan­cial obli­ga­tions to the Euro­pean Union (the "EU bill," which by some es­ti­mates could to­tal up to 60 bil­lion eu­ros, or $65 bil­lion), as well as the rights of EU cit­i­zens liv­ing in the United King­dom and of Bri­tish cit­i­zens liv­ing on the Con­ti­nent.

Both par­ties say they would like to achieve a mu­tu­ally ben­e­fi­cial deal, but their con­flict­ing in­ter­ests on many is­sues will not make that easy. Lon­don would like to hold con­cur­rent talks about its de­par­ture and the fu­ture bi­lat­eral re­la­tion­ship with the bloc. The Bri­tish gov­ern­ment will seek a broad free trade agree­ment to pro­tect its com­mer­cial ties with the Euro­pean Union. It also would like to in­tro­duce any Brexit agree­ments in stages (an "im­ple­men­ta­tion phase") to min­i­mize dis­rup­tions to the Bri­tish econ­omy.

The Euro­pean Union, how­ever, wants to take a se­quen­tial ap­proach, fo­cus­ing on the exit terms first and leav­ing trade dis­cus­sions for the fu­ture. Dif­fer­ent EU mem­bers also have dif­fer­ent pri­or­i­ties when it comes to the Brexit. Coun­tries such as France and Ger­many are par­tic­u­larly in­ter­ested in en­sur­ing that Lon­don is not granted con­ces­sions that weaken the in­tegrity of the sin­gle mar­ket, but those with close po­lit­i­cal, eco­nomic or mil­i­tary ties with the United King­dom, such as Ire­land or Cyprus, will push to ac­com­mo­date Bri­tish de­sires as much as pos­si­ble.

For both sides, do­mes­tic pol­i­tics will play a role in the ne­go­ti­a­tions. The Bri­tish gov­ern­ment has promised vot­ers that the Brexit will be a suc­cess, while EU gov­ern­ments want to demon­strate to their own cit­i­zens that de­part­ing the bloc is not a pain­less process.

Though the ne­go­ti­a­tions over each of those is­sues will be tough, the process to ap­prove the deals that emerge will be even tougher. Bri­tish vot­ers gave their lead­ers a clear man­date to leave the Euro­pean Union, but the Brexit ref­er­en­dum did not spell out the terms un­der which it should hap­pen. This has al­lowed Bri­tish po­lit­i­cal par­ties to make their own de­mands and es­tab­lish their own ex­pec­ta­tions about what the fi­nal set­tle­ment should look like. More­over, there is an un­re­solved dis­pute over the role of the Bri­tish Par­lia­ment in the process: Many law­mak­ers want the gov­ern­ment to sub­mit any deals for their ap­proval be­fore they are re­turned to the Euro­pean Union for rat­i­fi­ca­tion, but the Bri­tish gov­ern­ment says Par­lia­ment should get only a "take it or leave it" vote on the fi­nal deal.

On the EU side, the terms of the United King­dom's de­par­ture can be ap­proved by a qual­i­fied ma­jor­ity of mem­ber states. Un­like a unan­i­mous vote, this pro­ce­dure re­duces the abil­ity of coun­tries to make ex­treme de­mands of the United King­dom in ex­change for ap­proval. Ac­cord­ing to Ar­ti­cle 50, the coun­try leav­ing the union has two years to ne­go­ti­ate the terms of its de­par­ture. This pe­riod can be ex­tended, but only if ev­ery EU mem­ber ap­proves. Sim­i­larly, any free trade agree­ment be­tween the two must also win unan­i­mous EU ap­proval. Such unan­i­mous votes open the door for in­di­vid­ual coun­tries to seek con­ces­sions by threat­en­ing to block ap­proval. More­over, a free trade agree­ment would prob­a­bly re­quire rat­i­fi­ca­tion by na­tional, and in some cases re­gional, par­lia­ments across Europe. This is wor­ry­ing for the United King­dom: In late 2016, a re­gional par­lia­ment in Bel­gium nearly blocked a free trade agree­ment be­tween the Euro­pean Union and Canada. In ad­di­tion, both the terms of the Bri­tish de­par­ture and any free trade agree­ment will re­quire rat­i­fi­ca­tion by the Euro­pean Par­lia­ment, which could try to im­pose its own de­mands.

The United King­dom's exit from the Euro­pean Union has raised dif­fi­cult po­lit­i­cal ques­tions for all par­ties in­volved. The process is threat­en­ing the United King­dom's ter­ri­to­rial in­tegrity be­cause the de­ci­sion to leave the EU sin­gle mar­ket (an area in which peo­ple, goods, ser­vices and cap­i­tal move freely) has reignited se­ces­sion­ist de­mands by the Scot­tish gov­ern­ment and cre­ated con­cerns about re­newed bor­der con­trols be­tween North­ern Ire­land and the Repub­lic of Ire­land. In the City of Lon­don, mean­while, ques­tions about the fu­ture of Bri­tain's fi­nan­cial sec­tor have prompted com­pa­nies to con­sider mov­ing some staff and op­er­a­tions to the Con­ti­nent. The Bri­tish econ­omy has shown no­table re­silience over the past year, but it will not feel the full ef­fects of the Brexit for a few years.

The Euro­pean Union will face its own chal­lenges over the next few years. The bloc will have to for­mu­late a bud­get that takes the United King­dom's ab­sence into ac­count, and some mem­ber states al­ready have come out against in­creas­ing their na­tional con­tri­bu­tions. EU coun­tries also must con­sider the fu­ture of their se­cu­rity and de­fense struc­tures mi­nus the par­tic­i­pa­tion of one of its key mil­i­tary part­ners. More im­por­tant, the bal­ance of power among EU mem­bers could be desta­bi­lized — North­ern Europe fears that the United King­dom's de­par­ture will in­crease Mediter­ranean Europe's in­flu­ence. These con­sid­er­a­tions risk in­creas­ing the bloc's frag­men­ta­tion at a time when pop­ulist, na­tion­al­ist and Euroskep­tic po­lit­i­cal forces are as­cen­dant.

The Brexit does not cre­ate an im­me­di­ate threat to the Euro­pean Union's sur­vival. The United King­dom is not a mem­ber of the euro­zone, and although the exit mech­a­nism has never been used be­fore, the bloc's le­gal frame­work was set up to ad­dress the de­par­ture of one of its mem­bers. In the im­me­di­ate term, the main threats to the Euro­pean Union's in­tegrity come from strong Euroskep­ti­cism in core euro­zone coun­tries such as France and Italy, which will hold elec­tions in the com­ing months. The Brexit does, how­ever, rep­re­sent a dan­ger to the bloc in the sense that it will cre­ate a roadmap to de­par­ture that other coun­tries could fol­low. More­over, if a postBrexit United King­dom ex­pe­ri­ences a less in­tense eco­nomic down­turn than ex­pected – or es­pe­cially if it has an in­crease in pros­per­ity – it could tempt other dis­sat­is­fied EU mem­bers to fol­low its lead. Euroskep­tic and Europhile forces alike will be fol­low­ing the de­vel­op­ments closely. For bet­ter or worse, the United King­dom has bro­ken the taboo of leav­ing the Euro­pean Union.

For bet­ter or worse, the United King­dom has bro­ken the taboo of leav­ing the Euro­pean Union.

EU Coun­cil Pres­i­dent Don­ald Tusk hold­ing the let­ter from Bri­tish Prime Min­is­ter Theresa May, trig­ger­ing Ar­ti­cle 50 for Uk’s with­drawal from the EU

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