European Union

Surviving Brexit

Ian Bremmer on how Britain should chart its future adrift from Europe

As Britain now advances towards an uncertain future, it will need a leader who can chart a steady course. Theresa May, as the new prime minister, faces uncertainty enough without flirtation with the notion that Brexit might still be avoided. The people have spoken, and their choice is irreversible, a point she quickly acknowledged following the referendum vote. It is time to make the best of it, to build a new Britain, and to look towards new relationships with Europe, the United States, China and the rest of the world. There is much that can be gained in coming negotiations that will determine the lasting diplomatic and economic consequences of the Brexit vote and the UK’s future sources of wealth and influence.

Brexit’s longer-term diplomatic and economic consequences
First, May and her negotiators will have to determine the new UK relationship with the European Union. The best outcome for Britain’s international influence and its economy would be to follow the ‘Norway model’ towards membership of the European Economic Area but not the EU, allowing for privileged, though less than total, access to the single market. That outcome won’t be easy to sell at home since this model would still require the UK to contribute to the EU budget and accept EU regulations while the permitted curbs of migration from EU countries are unlikely to satisfy the Leave voters. Nor will it be easy to persuade European governments to accept this outcome, since the German and French governments in particular are loath to support so generous an offer. Better to demonstrate that exit comes with consequences much more severe than such a deal would offer.

Britain is likewise unlikely to follow the ‘Switzerland model’, because that result would force the UK to continue to accept free movement of labour from other EU states while having to forge individual agreements with EU members to gain partial access to the single market. Britain might manage to follow the ‘Canada model’, allowing for an arrangement similar to the ‘comprehensive economic and trade agreement’ that Canada has negotiated with the EU. That would provide the fullest possible access to the single market without having to open borders to EU workers or help fund the EU bureaucracy. Given these advantages, it would take considerable time for British negotiators to persuade their EU interlocutors that this is a deal the EU can afford to accept. There are other models to consider, as well, and variations on those listed above.

Yet, the British leadership must recognize that the European Union will become much more fragmented in coming years. Recent surveys suggest that in both France and Italy, a majority of poll respondents would like to see EU exit referendums of their own. Even if Italy’s Matteo Renzi can move forward with structural political and economic reform in coming years, and France’s Marine Le Pen never comes closer than her father to the Elysée Palace, a peculiarly anti-EU brand of populism, with appeal to voters on both the left and right, will become a lasting fixture of politics in both of those countries. Just as David Cameron hoped to protect his Conservative party’s vote share by borrowing a bit of the UK Independence Party’s messaging, so French and Italian leaders will try to navigate the rough waters ahead. Add that exit referendums are more likely in the Netherlands and Austria than in France and Italy, and the scale of threat to EU unity comes into view.

Nor is Europe done with its migrant crisis. For the moment, government-made obstructions in the Balkans and an EU deal with Turkey have sharply slowed the flow of desperate humanity from the Middle East and North Africa towards Europe. Yet, Europe’s agreement with Turkey depends on both a unanimous decision by EU leaders to grant Turkish citizens visa-free travel throughout the Schengen area and on the Turkish government’s willingness to rewrite anti-terrorism laws to comply with EU standards on human rights and freedom of speech.

‘Brexit will deal a significant and lasting blow to Britain’s all-important banking sector as European banks compete for business’

Neither of these things is likely to happen, particularly so after the failed coup in Turkey of July 15, and we can expect another surge in the migrant crisis that will shape European politics for many years to come. It might even threaten Angela Merkel’s stabilizing role as Germany’s chancellor − and as soon as federal elections are held next autumn. The likeliest longer-term result of all these pressures is a multi-tiered European Union, one in which some governments have greater rights and responsibilities while others opt for an à la carte approach to EU rules. (In that context, and depending on the long-term agreement that Britain is able to strike with the EU, Brexit might make Britain the envy of many lower-tiered states.)

Given the volatility that Europe is therefore likely to produce, future British governments will continue to try to improve political and economic ties with China, which will become the world’s largest economy in coming years. Yet, Britain will have to work harder than before on this project. Incomplete access to the European single market will make Britain less appealing as an EU anchor for Chinese investors, and the country’s reduced voice in international politics, the inevitable result of a less dynamic economy, will increase incentives for China to continue to deepen trade and investment ties with Germany at Britain’s expense. Britain’s ‘special relationship’ with the United States will continue, though Washington, like Beijing, will value it less. The United States will be much more inwardly focused in coming years as future presidents contend with public scepticism of foreign policy adventures that might result in a long-term commitment of US troops and taxpayer dollars.

Brexit will deal a significant and lasting blow to Britain’s all-important banking sector as (collectively much larger) European banks compete for business and investment opportunities. The pound will lose more ground against the euro and the dollar during the period of uncertainty over Article 50 negotiations. Over time, the pound may even lose ground to the Chinese yuan as a store of value.

What is to be done?
To protect British wealth and influence in coming years, those who hope to preserve Britain’s engagement with the world should stand down long enough to allow the most xenophobic of the Brexiteers to discredit themselves. It is sensible to hedge bets on too close a relationship with fragmenting Europe, but no nation will thrive without a coherent strategy to expand economic frontiers through trade and investment, to promote the national interest abroad, and to remain open to immigrants.

Future British leaders would be wise to devolve more power to regional and municipal governments, and to private-sector actors. If national (and supranational) governments are increasingly discredited in the developed world, it is best to let locally elected officials develop policies that more effectively meet the needs of constituents. If nothing else, this approach can restore faith in the legitimacy of government. The most important of Britain’s municipalities offers a case in point: let London welcome skilled labour to build a truly globalized city, one that attracts investment and top talent as an incubator of world-class technology and financial services.

Whatever the damage Brexit inflicts on Britain’s financial sector, the opportunity to shed EU-imposed regulation can help London compete even more effectively with New York, Singapore and Frankfurt as a hub for finance. In addition, preserving British wealth and influence means preserving the United Kingdom. Devolve more power to Scotland and Northern

Ireland to answer the demands of their citizens for greater autonomy over their own lives.

Britain will also need a more ambitious foreign policy, and the good news is that the nation is blessed with one of the world’s finest foreign service corps. In a world in which global leadership is in increasingly short supply, a world buffeted by political, economic, and military crises, the need to diversify international partnerships, to pivot among political and commercial partners, will be more important than ever. This is why Britain’s decision in 2015 to ignore US warnings in order to become a member of the China-led Asian Infrastructure Investment Bank represents the wisest foreign policy investment Britain has made in recent years – though better advance communications with Washington will minimize the damage of these decisions in future. At the same time, Brexit makes British leadership within NATO more important than ever as an institutional bond with Europe and the US.

Unfortunately, Brexit makes a pivot strategy both more necessary and more difficult to achieve. But in coming years, and whatever the obstacles the country faces as a diminished power, Britain will need to build the best possible relations with core EU states such as Germany and France, with emerging giants such as  China and India, with members of the Commonwealth and with the United States. Only through diversification of partnerships can Britain absorb the various shocks it will surely face in years to come.