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As a Briton who follows the news closely and teaches at a London business school, I note that many of my compatriots, colleagues and students take Brexit as a foregone conclusion. I think they’re wrong.
There are and will be significant headwinds for this or any future UK government trying to negotiate its way out of the European Union. There are strong political and economic forces that favor the status quo — the most notable being Scotland’s Scottish National Party, which threatened another referendum on independence should the UK leave the EU. It’s no coincidence that Prime Minister Theresa May’s first trip outside of Westminster as prime minister was to meet Nicola Sturgeon, the first minister of Scotland.
The other region that voted strongly in favor of “remain” is London. In Wandsworth, the London borough where I reside, 75 percent of voters voted to “remain.” (I was among these “remain” voters.) The capital’s importance and contribution to the UK economy cannot be ignored. London is a global financial power house. The BBC reports that London “is home to 251 overseas banks. UK financial services had a trade surplus of $71bn in 2013. London’s GDP is equal to that of Saudi Arabia.” While it accounts for 12.5 percent of the country’s population, it represents 22 percent of the UK’s GDP.
While not all financial services are located in London, the capital disproportionately contributes to GDP as well as exports.
READ MORE: Brexit or no, former central banker says global financial system needs fixes
According to the Guardian, “Britain has the highest ratio of services exports to GDP in the G7, at 13%. It also has the biggest share of financial services exports by some way, at 29% in 2012. The second is the U.S. at 15%, with Japan exporting the least at 3%.”
As long as the UK stays in the EU, banks in the UK can offer a wide range of financial services through the banking passport system. But Brexit threatens that. Were financial firms to lose access to the banking passport system, they may consider moving their operations elsewhere in the EU. And even if only part of these services left London, the government would have to find a way to make up for such capital leaving their economy.
Similarly, the government will have to find the money to compensate for current EU funding. Indeed, some of the regions that voted “leave” have demanded reassurances from the UK government that all EU contributions will be met. Wales, for instance, receives far more from the EU than it contributes to it. According to Bloomberg, Wales sent “£414 million, but it received £658 million.”
After Scotland, Theresa May paid a visit to Carwyn Jones, first minister of Wales. In a BBC interview, he stated, “I asked whether the UK government would be prepared to make up any financial shortfall facing Wales after a Brexit. There was no definitive response, other than she recognized the concerns.”
It is worth reminding that neither Ms. May nor Mr. Jones wanted to leave the EU. So we are left with the paradox — and I would add it is a credit to the UK democracy — that these elected officials are embarking on a project they do not fundamentally believe in.
This leads me to another challenge that has to do with the negotiations themselves. Even if all of the above were to be glossed over, this or any future UK government won’t be able to have it all. Theresa May instructed her government to “negotiate the best deal for Britain in leaving the EU and forge a new role for ourselves in the world.” But what does that mean in practice?
READ MORE: Column: In the wake of Brexit, will the EU finally turn away from austerity?
This, I think, is the central conundrum: How much free trade will be given up to restrict this or that level of free movement of people? So far my British passport has allowed me to live anywhere in the EU unimpeded. In 2015, I contributed to the more than 48 million visits that Britons made to other EU countries. By comparison, 3.9 million visits were made by Britons to North America.
Are Britons going to have to give up this freedom? And if so, what will we get in return for a potential reduction to move freely across other parts of the EU?
Well, not much it might seem. Imagine the following scenario where the UK asks for more controls for citizens of other EU countries, while trying to keep the same existing freedoms for ourselves. Surely, we will have to give something up and if not on our freedom of movement, then on trade. If so, which parts of the UK industry will be sacrificed and slapped with tariffs in order to prevent citizens from some or all EU countries to freely settle in the UK?
There are other thorny issues to consider, such as the status of Gibraltar (where “remain” obtained 95.9 percent of the vote), the status of UK citizens currently living in EU countries or what kind of border there will be between Northern Ireland and the Republic of Ireland.
It is at this point that the negotiators will see the irony and futility of the process. Why consciously expand time and money to reach an agreement inferior to the current situation? If this were the prisoner’s dilemma, it would be as if both parties chose to not cooperate, thus ending up with less utility on both sides than before negotiations. It is precisely this kind of reasoning that may slow the process of disentangling more than 40 years of integration.
The challenges facing this or any future UK government are complex and numerous. It is not simply a matter of promising that “the money we send to the EU could be spent on the National Health Services,” as the “leave” campaign once claimed and later admitted was wrong.
In the end, Brexit may not necessarily happen.
Wahyd Vannoni is the founder of Mediacodex Ltd, a London-based communications consultancy. He also teaches marketing and marketing related subjects at Hult Business School in London. He holds a MBA from Boston University.
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