By Tina Irgang
The British electorate’s decision to leave the European Union continues to send shockwaves through the global economy, with little clarity as to what the next few years will bring. Resisting EU pressure to get on with the divorce, UK leaders have so far declined to initiate exit proceedings.
Many companies, in the U.S. and elsewhere, were taken off guard by the vote in favor of leaving the EU, which most had considered unlikely until the last minute, notes Fortune. Now, “company executives are anticipating a drop in demand from European economies and many are seeking legal advice on how Britain’s break from the EU could impact trade deals and regulations.” What’s more, “Britain’s EU exit could force U.S. manufacturers with factories in the UK to start paying tariffs on goods sent from England to EU countries. Those goods would also have to go through customs, adding time and cost to business operations that would favor European competitors.”
As noted last week, an added complication for American companies is the fact that in the wake of the Brexit vote, the pound’s value has dropped compared to the dollar, making American exports less competitive.
What’s more, the effect of a Brexit likely won’t be limited to large American corporations with overseas operations. The vote has generated a climate of economic uncertainty that stretches far beyond Europe. “This could cause business investment in the U.S. to fall and limit economic growth,” notes Fast Company — not the ideal environment for starting or growing a business.
Is there a way out of Brexit?
The big question being asked on both sides of the Atlantic now is whether there’s still a way out. Could the British government simply decide not to Brexit?
There are a few different possibilities, but they are complicated by two facts:
- No other country has ever pulled out of the EU before (though Greenland pulled out of the EU’s predecessor organization a few decades ago), so there is no solid precedent to refer to.
- Britain lacks a formal constitution. Its democratic processes are based on a series of Acts of Parliament, court decisions and conventions, which is proving problematic in an entirely new political situation.
The EU does have a mechanism for a member exit — Article 50 of the so-called Lisbon Treaty, which provides for a two-year negotiation period.
British Prime Minister David Cameron has so far declined to invoke the article, which would be the first step in initiating formal exit proceedings. So one option is for the UK to do nothing and simply remain in the EU, notes the New York Times.
Another option being discussed is that Scotland’s parliament could decide to block an overall EU exit, the Times adds. While Scotland is part of the UK, it is autonomous on some matters, and Scots voted overwhelmingly to remain in the EU.
Another possibility that’s been floated, given Brexit-triggered leadership turmoil in both of the UK’s major parties, is a new general election that could bring in a pro-EU prime minister. “While the odds of new elections aren’t bad, it’s still a long shot that they would stop the Brexit train,” says POLITICO.
All this is of course speculation. The only thing we know for sure is that the uncertainty surrounding Brexit doesn’t bode well for the global economy.
Tina Irgang is the managing editor of SmartCEO magazine and SmartCEO.com. Contact her at firstname.lastname@example.org.