24th June – the day after the referendum on EU membership

24th June – the day after the referendum on EU membership

Dieter Helm

11th May 2016

 

On 24th June we will know one way or the other:  either the UK and Europe will be very much as it was on 22nd June; or they will be a state of considerable uncertainty. Though the markets will have to some extent anticipated the outcome, there might be a rally in both the value of sterling and the stock market; or there might be precipitous falls. We will either have a pretty good idea of our constitutional, legal and market future; or we will be facing uncertainty on all three counts.

What happens on the 24th June if we vote to stay in the EU

So let us imagine what these two very different futures might look like. The easy bit is what happens if we vote with a clear majority to stay – say 55%-45%. On 24th June, David Cameron would emerge from the greatest test of his leadership victorious. He will have taken head on all three of the big constitutional challenges of our time: the future of our electoral system; the future of the Union with Scotland; and our membership of the EU, and he will have won all three referenda. After this string of successes, nobody will be able to regard him as a mediocre PM. Contrast him with Blair, who ducked the first issue, notwithstanding the long and ultimately unsuccessful flirtation with Roy Jenkins (and his commission) on PR; the botched devolution “settlement”; and his inability to take his pro-European (and pro Euro) aspirations forward.

In settling all three constitutional issues, Cameron would also have achieved major political successes for the Conservative Party. He has already decimated the Liberal Democrats (and the failure of PR has sealed their role as a marginal party for the foreseeable future). He has also seriously damaged the Labour party in Scotland, to such as extent that Labour is now third in Scotland, behind the Conservatives in the Scottish Parliament. With so few Scottish MPs, Labour is unlikely to form a majority government at Westminster for some time to come. Cameron might even have laid the foundations for the Scottish Conservative party to return to its former dominance in Scotland – though this we will not know for at least a decade. Finally, Cameron would have undermined UKIP’s attractiveness to right wing conservatives, and UKIP would now be able to go on to really attack Labour. In his own party, the Eurosceptics would have nowhere to go, and since the issue of Europe will have been settled by the people, and the gradual healing of the greatest schism in his party since the Corn Laws in the nineteenth century may begin to heal.

A yes vote would not only transform Cameron’s political position at home, but also his status and power in Europe. It is likely that he would gradually emerge as the most powerful European leader. Both France and Germany face elections next year. Merkel may hang on to power in Germany, but her authority has been severely damaged by her migration “open-doors” stance and the U-turns that have followed. She now faces her own UKIP at home, in the shape of Alternativ fur Deutschland (AfD), and talk of what comes after her is commonplace. Her best days are almost certainly behind her. Hollande faces the possibility that he might even be forced out of the run off for the Presidency by Marie Le Pen.

Cameron’s European power would play out in a context in which Merkel has already begun to sing his tune. She is now even more hawkish than Cameron on welfare payments to migrants, drawing a contrast between the free movement of people, and the free movement for welfare, and raising the idea of a 5-year waiting period. It can be expected that the Cameron’s welfare agenda will be pushed even further forward in the rest of the year, particularly because Merkel needs to show that she has not lost a grip of her own party, vulnerable to the AfD. For those in Europe in favour of open liberalised markets, Cameron could be the leader, and he would have the benefit of being outside the Euro. As Europe faces up to the core challenges of migration and the Euro, and confronts the far right across much of Europe, Cameron’s version of centre-right moderation stands out from the pack. He would also be a powerful player in the arguments about new EU trading agreements with the rest of the world. Crucially, he would have had a positive victory against his own Eurosceptics.

For the rest of us, a yes victory means that on the 24th June we would have a pretty clear idea of where we stand. We would know that the internal market remains open to us, and we would not have to renegotiate our trading arrangements. They would be the same as they were on 22nd June. All the directives that govern our trade, state aids, the internal energy market, competition policy and contextualise our regulation of utilities, finance and the environment would be exactly the same. Not much of this is ideal, and some of it is at best very inefficient, but at least we would know where we stand.

What happens on the 24th June if we vote to leave the EU

Now consider what happens if we vote to leave, again by a reasonable margin (we will come back to the “close call” result later on). On 24th June, a political earthquake would have happened. A vote to leave would almost certainly undermine the government, and Cameron would struggle to control the unfolding political crises. The Tory right would have won. Michael Gove might understandably stress that he would want Cameron to stay on as PM, but on what terms? There would have to be a big Cabinet reshuffle. George Osborne would have to go, as would a number of pro-EU Cabinet members who have taken an active part in the campaign. Indeed, the whole edifice around Osborne supporters across the party would be very exposed. With a majority of just 17, it is hard to see how the Conservative right would stay silent. Rebellions have already been coming thick and fast. They would want to push their agenda much harder still. Despite the constitutional difficulties of the fixed term rules, a General Election before the end of 2016 would be a possibility, driven by an unholy alliance of the left and the right wings. Conservative party civil war would be hard to avoid, and it is not entirely inconceivable that Jeremy Corbyn could end up as kingmaker, possibly with the SNP in toe.

This may sound dramatic, but it is very hard to see how the government could return to harmony on 24th June after a vote to leave. Is it really feasible to think of Liam Fox, Owen Paterson, and Ian Duncan Smith all sitting quietly on the back benches, and Boris Johnson leaving it to Cameron to negotiate our exit? Gove might imagine – and sincerely wish – for this outcome, but it just is not credible.

It would, in the event of a clear leave vote, be inevitable that the Scots would want to have another independence referendum. For them, the issue would be much clearer. They would confront Scottish voters with the support that the EU would provide, versus the lack of support an exit would offer from Westminster. The arguments about Scotland’s oil and gas, about its fisheries, and about the regional aid it could attract within the EU would have a hard edge. If the UK leaves the EU, the chances of the Scotland leaving the UK would increase. All of this is may happen quickly, as the SNP would want to exploit the resulting political chaos south of the Border. The position in Wales would be made more difficult, whilst the isolation of Northern Ireland as outside the EU would also be significant, with an independent Eire and Scotland close by inside the EU. Politically a leave vote might therefore be good for Nicola Sturgeon, as it might also be for Corbyn.

What few seem to have thought through is how the different factions would play their cards in exit negotiations. For the great weakness of the vote leave campaign is the same as that for those who campaigned for Scottish independence. Whereas it is pretty straightforward to predict what “remain” would look like (the situation on 22nd June), Vote Leave cannot provide a blueprint for what “leave” actually looks like. There are two reasons for this. The first is fundamental: Britain leaving the EU cannot be defined without including all the details about what the world would look like after so many things other change, many of which are outside its control. Change implies things will be different: “different” is not open to precise definition. That is why both sides’ arguments about the economic post-exit world are at best scenarios. Detailed modelling and statements about the “facts” are not going to shed much light, for the very good reason that there are no facts on the leave side. There can’t be. They are all conjectures. The only facts are those that describe the world now, on June 22nd

What we do know is that the leave campaign is quite understandably and reasonably driven by different views of what this might look like. For some it is most of what is already in place, including the EU single market. Quite how membership of the single market can be achieved without the free movement of people has never been clearly explained, because it can’t. We know what membership of the single market outside EU membership means for Norway and Switzerland. It means all the rules, and free movement of people, but no say in the outcomes. Understandably the leave side don’t want this, in particular because it would not address the migration issue that they are so deeply worried about.

Having foregone the Norway/Switzerland option, the leave campaign gets into very difficult territory. There is the fantasy that the UK can be a member of the internal market without the free movement of people. Apparently the EU will clamour for us to stay a member, but no one on the leave side has explained how the main countries in the EU could possibly sign up to this, without at the same time destroying the EU itself. For if this is what the UK got, then the voters in the core members such as Germany, France, Italy, the Netherlands as well as other like Sweden and Hungary would ask for the same. They would all face the possibility of their own EXIT referenda. The EU would probably not survive the exit of one of its founding members.

There may be some people on the leave side who would like to destroy the EU as well as have the UK leave. If this is what they have in mind, they should say so. The possibility of an EU falling to bits on our doorstep with a revisionist Russia to the East and rampant far right parties across Europe gaining momentum, a disorderly collapse of the Euro, and more chaotic immigration from the Middle East is one which would certainly threaten our national interests.

However nice Merkel and Hollande might like to be to the UK on the way out of the door, they politically have to be very tough, to save their own domestic political futures and to hold what is left of Europe together. The UK will have to pay a heavy price. In the leave campaign there are some who are honest enough to recognise this. They propose no trade deal with Europe at all. They say trade will just happen. But honesty is not the same as saying there will not be costs. The EU is an internal market with internal rules that opens up each other’s markets, on the very reasonable (and economically efficient) principle that the design of well functioning markets requires a level playing field with common rules for those who wish to benefit.

In the leave campaign’s arguments, they have not come up with a convincing post leave EU scenario, and unless they set out clearly how they think the Europeans will play their cards, and their view of how the underlying politics in Europe will play out, it cannot be convincing. This leaves Boris Johnson in particular stranded.

Gove, the clearest thinker on the leave side, understands all this. This is why he wants the “Albanian” solution. Put aside the riddle that attaches to comparing a large economy like the UK with a very small Albania, the model is one of a country on Europe’s border that does trade with the EU, but is outside the EU. What is very apparent is that almost everyone in Albania’s position seeks EU membership, for the very good reason that membership accords much better market access. Ask almost any Albanian whether they would like to join the EU, and the answer is likely to be yes, following the path already followed by the UK and EFTA in the 1970s, Greece, Spain and Portugal in the 1980s and the former Eastern European countries in 2004. Balkan counties have also joined since.

The more fanciful ideas emerge from those in the leave campaign who think that the future lies outside Europe. We would, they imagine, thrive better with a new trade deal with the US, and be better equipped to turn to what they see as the UK’s future markets in the Far East. Put aside for a moment that both the US and Canada are negotiating new trade deals with Europe to get market access, the reality is that US and other trade deals will take at least a decade to agree (whether Obama says so or not). Why? Because the US is a democracy with a Congress and a Senate, and many American politicians see the future as dealing with a unified Europe, not least because Americans are much more concerned about keeping up a united front against Putin than the niceties of internal European migration.

That leaves China and India. On the great hope, China, two things need to be noted. First, China is not currently a very important trading partner. Ireland is more important. It is true that the Chinese are investing in the UK infrastructure, but voting leave does not improve this (even if it was desirable), and the Chinese would rather have the UK in the EU rather than outside. India, Japan and other Far Eastern countries take a similar line: they want access via the UK into European markets. Then there is the question of the trade deals with these countries. The EU is likely to get quicker and better arrangements, because of its sheer size and clout, than the UK on its own – and especially if it faces competition with the EU, once the UK is no longer a member. The EU market is over 500 million people, and it is bigger than even the US, as a trading partner. The UK matters, but not on this scale.

It should also be noted that for the leave campaign to stress the importance of China, China does actually have to continue to be successful. This is far from clear, as its great transition ends. Worse, in challenging the US, the great ally that the leave campaign keeps stressing, over the next decade it is quite possible that China and Russia end up in a very different military place, the former in the South China Sea and the Indian Ocean; and the latter in Eastern Europe.

If on the 24th June the leave negotiations get going in earnest, and supposing for a moment that they run along smoothly, there is another huge uncertainty. If we leave, then the directives all fall away. There will be a host of areas where there will need to be UK laws to replace those that have dropped away. This is no minor issue. After the 24th June, Parliament will have to start a marathon legislative programme. It will need to reconstruct agricultural policy, fisheries policies, telecoms policies; state aids policies, renewables policy, and almost all environmental policy. It will need new financial legislation. None of these are easy or straightforward, again in part because few on the leave side agree what should be put in their place.

It turns out that the leave side mixes a curious Gaullist nationalism and its idea of a powerful state, a market economics which looks to a massive roll back of regulation, and a lot of sceptics on climate change and the merits of protecting the environment. The suspicion is that the UK they have in mind is a very laissez faire place.

This is, of course, an entirely legitimate reason for leaving the EU. If this is the kind of economic and society that leavers want to live in, they should say so. The problem is both one of principle and practice. The issue of principle is a fundamental political one about what constitutes a good society, and what makes for economic growth. Reasonable people disagree: some think laissez faire is the way forward, as a form of unbridled capitalism; others think the state should play a bigger role; and some think that both society and the economy work best where the state provides a framework within which markets can flourish. The practical point is all this will come to the fore on 24th June, because Parliament would have to start legislating, and as discussed above, in the face of considerable political chaos.

This leads particular interests to think through the consequences to them, of legislation they do not know the contents of. Are farmers going to better off with the CAP and its subsequent reforms, or with what? Are fishermen going to better off with the Common Fisheries policies and its subsequent reforms, or with what? Are those who care about the natural environment going to be better off with the Birds and Habitats Directives, and their subsequent reforms, or what? Or more locally, are Londoners going to be better off with the European Commission bearing down on air pollution on London’s streets and threatening prosecution, or by whatever air quality legislation the UK Parliament eventually agrees? It is just not clear what exit will bring. 

Finally, there is what happens in the two years laid down for exit negotiations of the relevant treaty. Suppose that negotiations start on 24th June, but the UK is not on course to meet specific targets in directives – on for example renewables or waste recycling or air quality. If we are negotiating to leave, would anyone bother to meet these unless it conveniently works for the UK?  There will be a limbo land for existing directives. We might for example decide to incorporate some of the EU directives to UK law, but then again we might not.

What happens on the 24th June if the vote is very close?

The above assumes either a clear vote to stay or leave. But what about a really close finish? Lets say 50.1 versus 49.9. There is a chance on 24th June we may even be having a recount, and then there will be endless arguments about what the result would have been had more ex-pats or specific groups voted.

But what would not be in doubt is that the government would not only be paralysed but there would be no set of “winners” to take the relationship with Europe forward. This is where the 17 majority comes in. Civil war in the Conservative party would not only be virulent, but no side would have a mandate. In the vote leave case, the leadership might change and there might even be an election, but it would at least be clear that the voters had mandated an exit. The choice would be about who conducts it. In the very close outcome, the voters will not have given this sort of mandate, and hence the sides in the civil war may be more evenly matched. Both sides would probably assume that there would have to be a second referendum, and probably on the basis of how the start of negotiations shaped up – and the immediate economic fall out. It would be reasonable for the remain camp to believe that as the chaos and uncertainty played out, as second referendum might result in a vote to remain. The rest of the Parliament would be overshadowed by all things European as a result.

If the 24th June is one in which we decide to remain, the Conservative government will effectively begin. All the issues that have been put to one side will now be back on the agenda and decisions can be made. Cameron will have just under 4 years to implement the rest of his manifesto, and he will have the luxury of not having to face the electorate again. Decisions that have been waiting in the wings can then be taken. Everything from the airport runways, the key energy policy matters, the 25-year environmental plan, the universal credit and the next stage of welfare reform – all of these can be got on with. But this only happens if there is a clear yes vote. Otherwise normal politics will not resume until at least after 2020. A vote to leave or a close outcome means that we will be “banging on about Europe” for several years to come, to the detriment of good government, and whilst Europe may be disintegrating around us.

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