international analysis and commentary

The post-referendum era: time to look forward


What will Britain look like, now that it has decided to leave the European Union? And what are its opportunities in a post Brexit-era, with an unstable Europe and a destabilizing geopolitical context? Although it has not yet been decided when the formal exit-procedure will be triggered, the British government has made it very clear that the popular decision will be final. While few expected the “OUT camp” to win, the result of the referendum has brought a rather chaotic and game-changing reality for the UK, for Europe and for the world. And like all major shifts, this causes difficult challenges as well as opportunities.

The challenges are relatively clear: keeping the country together, maintaining investor trust and establishing a new, as-profitable-as-possible relationship with the European Union. The political and institutional uncertainty that come with these challenges has already caused a negative impact on the UK’s economy. The pound has dropped substantially, which leads to higher import prices. The surprise about the outcome led to quite a bit of panic in the markets, and the FTSE dropped some 10% in the days following the referendum.

All of these (short-term) challenges aside, the more interesting question is perhaps that of Britain’s long-term economic prospects in this new reality. The answer to this question of course depends primarily on what identity and role the UK wants, and will be able to create for itself in the years to come. Will it be a divided, inward-looking, slightly xenophobic nation, or will it be a country that further opens itself to the world, its people and its businesses?

Shortly after the referendum, Britain’s Chancellor of the Exchequer George Osborne wrote in a commentary on the Wall Street Journal, “Britain may be leaving the EU, but we are not withdrawing from the world. Britain will be a beacon for free trade, democracy and security, more open to that world.” These words were meant to reassure businesses from around the world that the UK will remain an attractive environment to live and do business in. And although she did not grant him a position in her new cabinet, Britain’s new Prime Minister Theresa May roughly echoed Osborne’s words. “As we leave the European Union we will forge a bold new positive role for ourselves in the world,” she declared in one of her first speeches as the country’s new leader.

These words do not come as a surprise, but they do indicate her will to maintain the constructive, outward-looking vision that the UK has had for so long. How May and her cabinet will start to give meaning to these words, however, will probably be set out in the weeks and months to come.

Regarding the position of the UK in the world, it will be politics and diplomatic negotiations that will determine it. Not only does the UK have to negotiate new terms with the EU, but also with many other countries in the world that maintain trade treaties with the EU. For the UK to maintain its global importance, it is crucial that UK businesses will maintain access to other markets, and vice versa. When it comes to politics and tough negotiation, history tells us that the Brits should not be underestimated: the many opt-outs and special treatments regarding EU-legislation that the UK negotiated for itself, being a member of the EU are clear enough examples of such skills.

Meanwhile, the big question is where the strength of the UK lies as an independent country, and what it has to offer to people and to businesses from abroad.

There are several fields of business in which the UK does relatively well, but the most important one is finance. London, together with New York, is still the most important financial district in the world. Access to the EU internal market is an important factor here, but certainly not the only one. In terms of means, knowledge and financial infrastructure, London has a lot to offer the world regardless of the UK’s EU membership. And although a Brexit will change the relationship between the UK and the Continent, it certainly does not mean that there will be no relationship left. UK banks and other financial institutions may not get the same easy and open access to the EU market as they enjoy now, but it is hard to imagine that the EU will block access completely.

Regarding its business with Europe, London’s financial center will probably face more competition from Frankfurt, Paris and Amsterdam. A consequence might be that the city’s focus will partly shift from Europe to non-European markets, for example in Asia and in Africa – where the UK will no longer depend on Brussels to negotiate trade treaties. For the UK this creates an opportunity to build new relationships on more profitable and flexible terms. This applies to financial services as well as other fields of business and trade.

Here is where the greatest opportunities for Britain lay: in flexibility. That is, not being bound to EU foreign policy. In this new position it will be able to choose to align with the EU or to compete with it. This applies to important issues such as fiscal policy, market access for third countries and government support for investors.

Although the short-term challenges are severe, Brexit has certainly not brought only trouble for the country. Whether it was for the reassuring statements from people like Osborne and May, or for the government’s announcement that Britain will lower corporate tax rates, the fact is that several multinationals that threatened to leave Britain in case of a Brexit have already softened their tone. “We’re here to stay,” Joe Kaeser, Siemens Chief Executive, declared recently. “The UK matters with or without being a member of the EU.” A statement many agree with.