There is a relatively small island (a bit smaller than Oregon) off the North West corner of the continent of Europe. Having been populated by a wave of immigrants at a time when it was still joined to that continent, in about 6,000 BC the land bridge which joined them was destroyed by a combination of rising seas levels and the Storegga Slide. Since that time, about 20 miles of water has separated it from the continent.
For the first 6,000 years of that separation, it was left alone, though it traded a bit with the nearest country on the continent, eventually named Gaul. In 55 BC, it was temporarily invaded by a Roman aggressor called Julius Caesar. Having failed to achieve his objectives, he returned in 54BC to have, literally, another bash. He left again the same year.
Finally, the Britons having remained both annoying and apparently resource-rich, the same aggressive power, by then the Roman Empire under the Emperor Claudius, in 43 AD invaded and conquered the country they named Britannia. Even then, Rome’s success was not complete: the country rebelled under a forceful female leader in 61 AD (unsuccessfully). Having not tried very hard and then abandoned attempts to conquer the extreme north of the island, the Romans under the Emperor Hadrian built a wall (about 30 miles south of the eventual English/Scottish border) to keep out the Picts; in 142 AD they built another one further north, between the Firth of Forth and the Firth of Clyde (as they now are) but in 158 AD they reverted to the original plan. (They never tried to conquer the other, rather smaller, island to the west.)
About 350 years after the occupation began, in 410 AD, the British expelled the magistrates of usurping Roman Emperor Constantine III. The true Roman Emperor, Honorius, responded that they were on their own again. There followed 650 years largely of isolation from the continent again, marked however by a series of invasions, perhaps most famously by the Angles (who changed the name of the bit they had conquered) and Saxons, but also a bit later some Norsemen and Danes. Between them the Anglo-Saxons brought a habit of holding ‘moots’ both local and national to do justice and hear and decide grievances.
In 1066 AD, following the death of the King of what by then had been transmuted from "Angleland" to "England", one William the Bastard, the then Duke of Normandy (so called because it is populated by Norsemen who moved in at about the same time as some of them followed the Anglo-Saxons into England), made good a somewhat dubious claim to the throne of England by invading and conquering it - and was duly renamed William the Conqueror by his fair-minded subjects. Within the next 200 years, the Kings of England had, with the blessing of Pope Alexander III, taken over a perennially rebellious Ireland. They had also conquered the Principality of Wales and absorbed it into the nation-state of England.
The island has never been invaded since (unless one counts a quick trip by the Dutch in 1688 AD to assist the English, Scots and Welsh in installing William of Orange (William III) and his wife, Mary, as Protestant monarchs, kicking out the Catholic King James II/VII). This was mainly thanks to a great navy created and led by men like Drake, Pepys, St Vincent, Nelson and Jellicoe, as well an army led by men like Richard the Lionheart, Edward III, Henry V, Marlborough and Wellington.
In 1603, the Scots (who had taken over from the Picts north of the border) kindly allowed their King James VI also to become James I of England (and James I of Ireland). After all, as James himself put it: "Hath He not made us all in one island, compassed with one sea and of itself by nature indivisible"? Scotland and England were formally united in 1707, and union with Ireland was effective on 1 January 1801. Despite vicissitudes which mean that the United Kingdom now only includes Northern Ireland, rather than the whole of Ireland (though any Irish citizen can still vote in the UK), that remains (literally – the relevant laws are still in force) the position.
During this time, England developed its own language (a curious amalgam of Anglo-Saxon, ancient British, a bit of Latin, a bit of Norman French and so on, which has proved remarkably flexible and adept both at absorbing words from any other language and inventing new ones), its own legal system (based on ancient customs, principles and above all precedent rather than sticking with Roman law and trying to create all-encompassing codes), its own system of governance (involving the idea that even the King was subject to the law, and even his subjects had their own rights and freedom, as well as the idea that the King could not levy taxes without the consent of the Commons) and its own religion (Protestant, rather than either Catholic or Lutheran/Calvinist). Some of these developments were happy accidents arising from rather unglamorous roots (such as the Protestant Church) but others, such as Magna Carta (1215 AD) and Simon de Montfort’s Parliament (1265 AD) came about because they were thought to be right and had roots in Anglo-Saxon customs. These all pervaded Wales and strongly influenced both Ireland (except for Protestantism) and Scotland. They made England, and the UK, different from the nations on the European continent.
The purpose of this brief history is simply to indicate that the inhabitants of these islands are on the whole an independent, even insular, bunch. They have intra-family disputes, which can be quite serious, but on the whole (the southern Irish don’t altogether agree) they consider themselves to be just about that: "family". The nations of England, Wales, Scotland, Ireland and Northern Ireland still field separate sports teams (by the way, yes, the Scots, Welsh and Irish play cricket), but 1,000 years of independence and separation has built in all of them a combined mind set which has a stubborn, even rebellious, streak and does not take kindly to being told how to run one’s affairs by an outsider.
That is particularly so since the UK’s intervention in the politics of the continent of Europe has (since we gave up trying to take over France, about 500 years ago) always been directed basically to maintaining the balance of power so that no-one would be able to take us over. We have never permitted one country on the continent of Europe to become completely dominant, though obviously power has waxed and waned as between them.
The reason 900 years of hostility between us and France (largely) ended just over 100 years ago was indeed to preserve that balance by, broadly speaking, supporting France against Germany. Our other interventions have been to support the neutrality and independence of smaller European states: it was support for the neutrality of Belgium that brought us into World War I and support for the independence of Poland that brought us into World War II.
Finally, of course, the acquisition of the greatest empire the world has ever seen (even without some rebellious and religiously unorthodox colonists in North America who felt about 250 years ago that they were more English than the English in preserving their freedoms - and had considerable support within Britain in that - and went their own way) tended to breed a certain imperial belief that we knew what we were doing and were doing it rather better than most. It certainly reinforced a habit of mind that other countries were not going to dictate to us in any way.
Having given independence to the ‘old Commonwealth’ (Canada 1867, Australia 1901, Newfoundland 1907, New Zealand 1919 – 1931 and South Africa (which took with it Namibia) 1931/1934, all formalised in the Balfour Declaration of 1926 and the Statute of Westminster in 1931) first, and to most of the rest of the empire in the years 1947-1964, in the famous words of Adlai Stevenson we "lost an empire but ha[d] not yet found a role". However, in the early 1960s we attempted to join a group of European states in a new venture called the European Economic Community. We were vetoed by the French (twice, in 1963 and 1967), since President De Gaulle considered us, shall we say, not very European-minded. In 1973, President De Gaulle having left the scene, we eventually joined the European Economic Community.
Even in the early 1970s, the decision to join a European grouping caused some angst within the UK. There was a dispute between those who believed in "Commonwealth preference", regarded the protectionist rules of the EEC (which, for example, resulted in our normal suppliers of diary produce such as Australia and New Zealand facing substantial tariffs) as an anathema and preferred to rely upon our old truly international trading links and those who preferred the ‘walled garden’. Both major political parties were seriously split.
In the end the (Labour Party) Prime Minister, Harold Wilson, having come to power in 1974 on a manifesto commitment to renegotiate our terms of membership, did that and called a referendum in order to resolve the issue. The referendum produced a substantial majority (67.2% : 32.8% on a 64.6% turn-out) in favour of remaining in the EEC, despite the warnings of campaigners against it, some of whom warned that it was the precursor of a European "super-state".
Since then, the "European Economic Community" has morphed into the "European Union". The European Union, besides constituting itself a single market (something which had to be fought for very hard by the UK and some other states within the EU and is still incomplete) now has a President (in fact, more than one!) and foreign minister (and a common design of passport), a common currency (not extending to all member states, but all new joiners must commit to it), freedom of movement (i.e. the ability to change permanent residence) between member states, a parliament and so on. To many it invokes the adage that if it looks like a super-state, acts like a super-state and feels like a super-state, it probably is a super-state, at least in embryo.
A combination of these moves on the "macro" level, and micro irritations such as directives being issued by the EU which have direct force in local law, and are perceived as interfering with everyday life and so on, have irritated people long used to self-governance, doing what they want and not what anybody else wants etc. In addition, the EU has been a convenient "whipping boy" for national politicians of all stripes for unpopular things if there is any chance they can be blamed on it.
The substantial British net payment into the EU budget, even after the "Thatcher rebate", has been a permanent irritation, particularly after half of that rebate was given away by the Blair government. Although half of the gross payment comes back in the form of EU grants (a) that, of course, means that it is not the UK which decides how that money is spent; and (b) it is still a large net payment.
There are good arguments in favour of EU membership. The EU is one of the largest markets in the world. Its internal market enables both goods and (increasingly) services to be exported freely from any one member to another, and its system of reciprocal judicial support means legal disputes can be easily resolved and enforced anywhere within the EU. Its size means that it has trade (and diplomatic) negotiating weight enabling it to do good deals with other nations and trading blocs. The European arrest warrant and criminal/anti-terrorist co-operation work well. And so on.
But such arguments do not address the ‘reclaim our country’ political argument, or the suspicion that remaining means not the status quo but yet ‘more Europe’. And those who advocate leaving say that there is more and better trade to be done world-wide than confined within a bloc and constrained in negotiations by the need to get 28 fractious members to agree every position. These views gradually became more attractive as the years went by.
Accordingly, 41 years on from the original referendum on membership of EEC, another (this time Conservative Party) Prime Minister, David Cameron, having come to power in 2015 on a manifesto commitment to renegotiate our terms of membership, did that and called a referendum in order to resolve the issue. The referendum produced this time a majority in favour of leaving the EU. The margin on 23 June 2016 was not large (1.3 million votes; 51.9% to 48.1%, on a turn-out of 72.2%) but was significant.
The campaign was not particularly edifying. A respectable economic case for staying (all the independent forecasters suggested a loss of several points of potential GDP growth due to departure) and the political arguments for it, and the mainly political (but also long term economic) one for leaving, were marred by absurd claims on both sides. Those favouring "Remain" invoked the threat of war (the Prime Minister), the "end of Western political civilisation" (Donald Tusk, President of the European Council), a "20% fall in house prices" (the Chancellor of the Exchequer), and "annual income loss of £4,300 per family" (the Chancellor again). The only omissions were famine and plagues of frogs. The ‘Leave’ campaign called it ‘Project Fear’. By the same token the "Leave" campaign majored on a cost of £350m per week (the gross contribution to the EU budget) which they offered to re-spend several times over, concentrated on the threat of uncontrolled immigration (the economic evidence, while rather a case of ‘lies, damned lies and statistics’, seems on the whole to indicate that the economic effect at any rate is probably somewhere around neutral), bureaucratic interference from Brussels and generally played the "Johnny Foreigner is taking over our country" card.
That campaign was undoubtedly won by ‘Leave’. The bandwagon was halted by the assassination of ‘Remain’ campaigning MP Jo Cox but not derailed. In the end, in this largely economic versus political argument, politics (and Leave’s economic hopes) won. A general feeling that the British wished to be British, rather than European, appears to have swayed the "floating vote".
Economically, at the date of writing (11 July) sterling has declined by over 12% against the US dollar and about 10% against the Euro, which has itself fallen against other currencies. The UK’s credit-rating has been cut from AAA or AA+ to AA (the same as France’s). On the other hand, stock-markets have regained pretty much all the losses which immediately followed the result. How much of that is due to genuine re-appraisal and decision that the economic outlook is not actually as bad as the markets initially feared, as against hopes of interest rate cuts and other monetary and financial stimulus, is unclear.
The uncertainty and the perceived likely loosening of economic ties with the EU countries are already affecting the economy, certainly in the short term. Despite the bounce in the stock markets, monetary and fiscal loosening of policy is expected in the face of these difficulties. The Government has already announced abandonment of its commitment to run a fiscal surplus by 2020 and it is expected that interest rates will be cut shortly in attempts to bolster the economy. The lower exchange rate already acts as a monetary loosening.
Politically, there has been outrage in the liberal metropolitan elite. There has also been some degree of "buyer’s remorse". A petition to have the referendum rerun (the ‘keep voting until you get it right’ approach) has been signed by about 4 million people at the time of writing (of which at least 100,000 appear to be robot-created ghosts). There are even suggestions that since the referendum is, technically, purely advisory and it is known that a majority of Members of Parliament are in favour of "Remain", Parliament may choose to ignore the referendum decision. (Of course, to do so would be political suicide for those concerned.)
David Cameron, the (Conservative) Prime Minister who had campaigned vigorously for ‘Remain’, understandably felt that he was not the man to lead the negotiations for withdrawal and so announced that he would resign as soon as the Conservative Party has chosen new leader. His successor as Leader of the Conservative Party was announced earlier today (pleasantly, Jane’s and my own MP, Theresa May, who we know quite well) who will take office as Prime Minister on Wednesday 13 July.
Quite separately, the Labour Party in Parliament voted by 172 to 40 on 28 June that it had no confidence in its leader. His somewhat ambiguous performance during the referendum campaign seems perhaps more an excuse than the true cause, though no doubt part of the cause. Whether he will be forced out is currently unclear: it appears that a leadership election will be needed. The result is uncertain both as to the votes and the consequences for the party. Certainly the political scene is going to see some changes.
What will actually happen? Our political leadership agrees on one thing with the political leadership in the EU. That is that the verdict of the British people must be respected. The Prime Minister designate (who declared for ‘Remain’ in the referendum campaign, though not very forcefully) has made it clear that "Brexit means Brexit", hence that there will be no second referendum and that she will ensure that the UK leaves the EU.
She is expected to invoke Article 50 of the Treaty of Lisbon, which formally starts a then unstoppable exit process, once the UK’s negotiating position has been decided. She has said may not be until towards the end of 2016.
There is some talk that a formal approval of this by Parliament is required (mostly from ‘Remain’ supporters hoping that Parliament would refuse to give it). It is to be expected that this will either be ignored or that Parliament will, in fact, bow to the will of the people and vote it. A serious constitutional crisis would result if it were not to do so.
Once Article 50 has been invoked, there is no turning back. The only thing that remains is to see what, if anything, takes the place of EU membership.
Many on the "Leave" side seek membership of the single market but without the obligation to pay into the EU budget and above all without accepting freedom of movement. The EU’s leadership has made it clear (both before and after the referendum result) that this is not on offer: it is the so-called ‘four freedoms’ (freedom of movement of goods, services, labour and capital) or none. So, if membership of the single market is sought, then the payment into the budget (maybe at a lower basic level but presumably without the previous British rebate) and acceptance of freedom of movement are required (on the so-called Norwegian model, based on membership of the European Economic Area along with Iceland, Liechtenstein and Norway).
There is then a variety of "middle way" positions, for example the ‘Swiss option’ of bilateral deals not quite as good as EEA membership. The problem is that the Swiss option excludes services, the UK’s strong suit. The UK could re-join EFTA (which it left to join the EEC). There is also the Canadian option, for example, or perhaps the TPP. There are bespoke option apart from these ‘off the peg’ answers. Then one reaches the "no deal at all" position, when one presumes the UK would rely on the World Trade Organisation ("WTO") rules entitling it to Most Favoured Nation status and accordingly enjoy access to the EU’s market but only on that basis, which is considerably less advantageous than the current basis. (Of course, the fall in sterling would compensate for some tariffs.)
In the medium term, there can be no doubt that Dublin/Ireland (English speaking, common law, established financial expertise), Frankfurt/Germany (substantial financial market) and Paris/France (same) in particular will be vying mightily to become the major point of entry into Europe for a number of financial and manufacturing organisations around the world that have previously entered the EU via London/the UK. The Leave campaign believes that this danger is exaggerated and that any loss will be more than offset by trading opportunities elsewhere in the world. All that can be said is that we shall now see!
An enormous number of treaties will have to be renegotiated. The UK, having over the past 43 years interwoven its affairs very substantially with the EU, has its international relationships in a large number of ways conducted through the EU (one of the things, of course, to which the Leave campaign objects). All the relevant treaties will require to be renegotiated.
In addition, a great deal of UK law is based either on EU Directives with direct effect, on UK legislation implementing EU requirements, either in terms as the UK interprets them, or indirectly by UK law having been drafted practically or even expressly to harmonise with EU law. All of this will have to be rethought and much may have to be rewritten.
A special unit was set up within the Civil Service, to be run from the Prime Minister’s office, starting as early as 28 June, to deal with this. The current suggestion is that the Government will have to hire a substantial number of expert outsiders to assist. The timescale for completing it is uncertain: even leaving aside President Obama’s suggestion that the UK would be "at the back of the queue" (which didn’t help the Remain campaign – remember that the British don’t like being pushed around), negotiating trade (and especially services) treaties is notorious for being a long process.
On the other hand, the two year timescale for quitting the EU is fixed by Article 50 and can only be extended with the consent of all the remaining 27 members of the EU. It seems unlikely that every single remaining member will wish to accommodate the UK by extending the period.
The effects are already being felt. As just one example, the EU Regulation and Directive governing the market in financial instruments require that ‘third country’ firms providing investment services to professional investors must offer to submit any disputes relating to those services to the jurisdiction of the Court or arbitral tribunal in a member state, and that in respect of retail investors member states may require that third country businesses who wish to do business must set up a branch in the member state. Two years after Article 50 is invoked, the UK will become a ‘third country’. Accordingly, even contracts being written today will have to take account of these requirements within the EU, which will take effect as soon as the two year transitional period is over.
By the same token, the Brussels Regulation on the automatic recognition of judgments within the EU will cease to be effective in respect of UK judgments two years from the invocation of Article 50. (Granted the length of time some cases take to be decided, this is already a consideration.) Accordingly, amongst the treaties which will have to be renegotiated (even if only by seeking to put in place former treaties, and one would hope these could be improved) will be all the necessary treaties for the 27 member states. And, to quote Professor Burkhard Hess and Professor Marta Requejo-Isidro: "The main interest of the union won’t be to maintain or strengthen London’s dominant position in the European judicial market …. [and] … there is a genuine interest to the Union to see mandatory EU law applied in disputes relating to the internal market by courts operating within its regulatory framework". The UK cannot expect any favours.
Even the English language may suffer. Although English has been the lingua franca in the EU, the UK is the only country which has registered it as its official language. Accordingly, two years from the invocation of Article 50 it will no longer be amongst the languages officially used by the EU. One must suspect that its role as a lingua franca will be under immediate attack.
The UK’s internal political arrangements may also be affected. Leaving aside the party political difficulties mentioned above, the outcome of the referendum was in many ways the worst possible one for the future unity of the United Kingdom. England voted substantially to leave (though London voted substantially to remain); Wales also voted to leave. On the other hand, Scotland voted to remain and Northern Ireland voted to remain.
Scotland has, of course, as recently as 2014 held a referendum of its own on remaining within the United Kingdom. The result was a reasonably substantial majority to stay within the United Kingdom (55.3% : 44.7% on a turnout of 84.6%). Since then, the value of oil, one of Scotland’s major natural resources, has declined precipitously, so the economic case for staying within the UK is better. Further, Scotland apparently wishes to keep sterling as its currency; this would not be possible (except by unlikely special concession) if an independent Scotland sought to join the EU. However, sentiment in Scotland in favour of remaining in the EU (and that objection to being pushed around – this time by the English) is so strong that it is thought that the balance will probably have moved further in favour of leaving the UK, maybe to a point where a new referendum vote could indeed go in favour of independence. There will be considerable politicking on that over the coming months and years.
The terms on which Scotland could join the EU would be difficult to negotiate, however. Besides the economic issues identified above, England contributes substantial sums to Scotland’s budget; EU subsidies would be required to compensate. Spain, with rebellious regions, may wish to make entry difficult o discourage its own separatists; Belgium might feel the same. On the other hand, the EU countries might wish to make the UK’s life difficult and so try to overcome these problems.
The situation in Northern Ireland is difficult. Much of the mechanics put in place by the Good Friday peace agreement will be imperilled by the UK’s departure from the EU. To put it at a basic level: much depends on the border, both political and physical, between the Republic of Ireland and Northern Ireland being porous and readily negotiated. When that border becomes the only land frontier between the United Kingdom and the EU, it is difficult to see how it cannot become quite a "serious" boundary. Considerable goodwill and ingenuity will be required to ensure that Northern Ireland does not revert to more difficult times (and Sinn Fein has already called for Northern Ireland to hold a referendum on joining the Republic).
Other political effects will surface. The effect on Gibraltar (which voted overwhelmingly to remain) may be particularly traumatic. The last time Spain closed the border with Gibraltar, it was reopened promptly after a peremptory intervention by the EU on the grounds of disruption to the single market. That level of protection will no longer be there, and Spain has already raised the issue of sovereignty over Gibraltar.
The influence of the EU and the UK in unrelated international bodies will change. The EU will no longer have two members of the UN Security Council; by the same token, the UK will no longer have to co-ordinate its vote there with France and the EU’s overall policy. The UK will be represented at CITES and many other bodies independently for the first time in many years; the EU’s voice will be weaker (except for example at CITES where it cannot agree a position anyway).
Strange linkages will be found. Thus it is already being pointed out that English law firms will be excluded from South Korea unless the UK negotiates entry for them, since they are there under EU agreements. The only universal law is that of unintended consequences. There are plainly unknown unknowns here!
Of course, there are those in the Leave campaign who believe (maybe hope) that the seismic effects of the UK’s departure will result in the departure of other countries from the EU (Nigel Farage, leader of the UK Independence Party and probably the prime mover of the whole ‘Leave’ movement, predicted as much in his speech to the European Parliament on 28 June) and might even bring down the whole structure. This cannot be ruled out as a possibility but it implies more disruption rather than less. So unless the whole EU structure is completely destroyed, at which point all bets are off, the attitude of those countries which remain in a smaller entity will presumably be less favourable to the country that started the process, the worse the process for that entity becomes.
Two years is a surprisingly short time, especially in matters of this gravity. Companies doing business with the UK, especially if it also involves other countries in the EU, should be taking account now of what is happening. It is to be hoped that the main outlines of the UK’s negotiating position (whether it seeks a Norwegian outcome, a WTO outcome or something in the middle) will be clear well before the end of 2016. The likely outcome of those discussions, however, will probably have to wait longer. In the meantime, the establishment of offices and factories, and the negotiation of contracts and deals, will have to take account of the potential effects of the likely end of the two year period in or about October 2018.
Having once said that, the UK is and always will be very much open for business, both from people within the EU and from people from outside it. We still love all our friends, and the countries of the EU remain in that sense very much friends. London remains, and will remain, a "world City" and buccaneering British businesses will continue to trade goods and services with everyone, using the experience gained over the last 1,000 years!
Bill Perry - Carter Perry Bailey LLP
11 July 2016