Brexit will have far-reaching economic, constitutional, and geopolitical consequences

Momentous. Seismic. Historic. The British vote to leave the European Union was all that and more. For the supporters of the Remain campaign and many in the EU, it is a catastrophic defeat, one that will prove to be immensely costly in a variety of ways to the UK and the EU. For supporters of the Leave campaign and euroskeptics throughout the EU, on the other hand, it is a great victory of democracy, one that will enable the British people, through their parliament, to reclaim the sovereignty that has been lost over the years to the EU institutions.

It is, of course, much too soon to know the full economic, political, constitutional, and geopolitical consequences of Brexit. But some of the immediate consequences of the 52-48 per cent vote in favor of leaving the EU are already apparent. The pound has dropped to its lowest level in more than 30 years against the dollar and dropped against the yen, Swiss franc, and euro as well. The British FTSE250, German DAX, and French CAC stock indexes have dropped by 5 to 10 percent and British banking stocks have suffered losses in the range of 15-20 percent.

The vote had an immediate political consequence as well; early Friday morning, Prime Minister David Cameron announced that, while he would remain in office for the time being, he would resign as prime minister so that a new leader of the Conservative Party and prime minister could be chosen to preside over the complex task of negotiating the exit. He said he anticipated a new prime minister would be in office by the time the party holds its annual conference in October.  The odds-on favorite is the former mayor of London, Boris Johnson.

It’s quite fitting that Cameron resigned; he is, after all, the person who came up with the idea of holding the referendum in the first place. Elected by party members as Conservative leader in 2005, he took office as prime minister after the 2010 election in a coalition government with the Liberal Democrats. In January 2013, he pledged that if the Conservatives won a majority in the 2015 election he would renegotiate the terms of Britain’s membership in the EU and hold an in-out referendum on membership by the end of 2017. It was, he said, “time for the British people to have their say. It is time for us to settle this question about Britain and Europe.”

But of course the pledge was not just about resolving Britain’s longstanding ambivalence about Europe; it was also about winning the 2015 election. Presiding over a Conservative Party that had long been deeply divided over Europe, was short of a majority and had to share power with the pro-EU Liberal Democrats, and facing a growing threat of defections of Conservative members of Parliament and voters to Nigel Farage’s xenophobic and euroskeptic United Kingdom Independence Party, Cameron’s pledge was motivated, above all, by his desire to secure a Tory majority in 2015. It worked; to the surprise of all the pollsters, the Conservatives won a majority.

Cameron immediately began an effort to renegotiate the UK’s terms of membership. In February, after months of meetings with other EU leaders, he and the other 27 heads of state and government of the EU agreed on the terms of a “new settlement” for the United Kingdom – one he and they hoped would persuade a majority to vote in favor of remaining in the EU in the referendum, which he announced would take place on June 23.

The “settlement” dealt with UK concerns in four areas – economic governance, competitiveness, sovereignty, and social benefits and free movement.  Cameron claimed it gave the UK a “special status in a reformed EU.” It didn’t. The UK has always had a special status in the EU, epitomized by its late entry in 1973, Margaret Thatcher’s insistence on a rebate of a portion of its annual fiscal contribution, its refusal to participate in the European Monetary System until 1990, its opt-out from Economic and Monetary Union and the euro, and its refusal to join the Schengen free-movement area. And the settlement didn’t reflect any significant reform of the EU; the “settlement” was for the most part rhetorical or substantively insignificant. Indeed, there’s no evidence that by June 23 the voters could even remember, let alone were persuaded to vote for Remain by the terms of the settlement.

There can be no doubt that Brexit will have far-reaching consequences both for the UK and the EU. Over the course of the referendum campaign, the Treasury, the Bank of England, the OECD, and the IMF weighed in with economic forecasts, all of which predicted that Brexit would have serious adverse consequences for the British economy. While those forecasts were inevitably speculative and predicated on inevitably arbitrary assumptions about exchange rates, trade, investment and growth, there can be little doubt that Brexit will have an adverse impact on the economy; the UK is highly dependent on trade – the ratio of its exports and imports to GDP is a bit over 60 percent, roughly half of its trade is with member states of the EU, and seven of the country’s ten most important national export markets are in the EU. In addition, London is the de facto financial capital of the EU; a significant portion of the euro-denominated business conducted in the city is likely to move to Frankfurt or elsewhere in the EU after Brexit.  

Brexit is likely to have far-reaching constitutional consequences as well. Perhaps most importantly, the exit of the UK from the EU is likely to lead to the exit of Scotland from the UK.  In 2013, the Scottish government headed by Alex Salmond, the leader of the Scottish National Party, called for a referendum on independence. In the referendum, which took place in September 2014 and in which 85 per cent of the electorate voted, 55 percent said “No” to independence. Nevertheless, soon after Cameron returned from Brussels with his “new settlement,” Nicola Sturgeon, who had replaced Salmond as First Minister, and Angus Robertson, the leader of the SNP in the House of Commons, made it clear that a UK vote to leave the EU would prompt another Scottish referendum on independence. 

Sixty-two percent of those in Scotland who voted in the referendum voted to remain in the EU.  This morning, Sturgeon made it very clear that it would be “democratically unacceptable,” given the large majority in Scotland in favor of remaining in the EU, for Scotland to be required to leave and that a second referendum on independence “is now on the table.” The SNP lost a half-dozen seats and its parliamentary majority in the Scottish election last month and Sturgeon will no doubt wait until the British government formally notifies the European Council of its intention to withdraw before moving forward with plans for a second referendum. But assuming the Scottish government is assured by the EU that, if it votes for independence in a second referendum it will be welcomed as a member, there will be a second referendum on independence. And there can be little doubt that, in the wake of a formal decision by the British government to withdraw from the EU, if there is a second referendum Scotland will vote for independence.

Brexit will also have equally far-reaching geopolitical consequences. The UK’s withdrawal from the EU, its Common Foreign and Security Policy, and its Common Security and Defense Policy will not only diminish the EU’s capabilities in regard to CFSP and CSDP, but will diminish its ability to deal with the continuing humanitarian crisis involving the migration of refugees from Syria and other war zones in the Middle East and Africa, as well as its ability to protect the member states and their citizens from threats to their safety and security, whether they emanate from international terrorism or, as for the member states in central and eastern Europe, from Russia.

And Brexit, accompanied as it will in all likelihood be by Scottish independence, may have other geopolitical consequences as well. An independent Scotland would surely seek to join the EU.  But it is unlikely to join NATO and, given the views of the SNP and the Scottish Labour Party, would probably negotiate a closure of Faslane, the port for Britain’s fleet of Vanguard-class Trident-armed ballistic missile submarines, and Coulport, where the nuclear weapons are stored.  A cross-party parliamentary study in 2012 concluded there are no suitable substitutes for those ports in England and Wales. Brexit followed by Scottish independence is likely, then, to lead not only to a Little England, but a Little England that is forced to give up its nuclear capability and, in so doing, shifts the nuclear balance between NATO and Russia in favor of the latter.

David R. Cameron is a professor of political science and director of the program in EU studies at the MacMillan Center.