Waking up to Brexit’s Bitter Aftertaste

United Kingdom votes to leave the European Union

27.06.2016 -

As the world woke up on Jun. 24 to the news that the United Kingdom had voted to leave the European Union, disbelief was strong – all the more as most people had gone to bed the night before assured by pollsters that the outcome would be the exact reverse. Even staunch Brexit campaigners such as Nigel Farage, leader of the UK Independence Party (UKIP), had virtually conceded defeat.

In the final tally, around 1 million more voters chose the Leave over the Remain option. Commentators said that although young people aged 18 to 24 voted overwhelmingly in favor of remaining, those over 65 wanting to get out produced the bigger voter turnout. The final result was 52% to 48% in favor of the Brexit.

Possible repercussions of the British exit for the UK and the EU were being heatedly debated over the weekend as political leaders from Ireland to Poland chewed over the referendum’s results. Especially unclear was how long it would take to unravel the more than 40-year economic, political and social entwinement.

The EU plans to hold a summit in Brussels on Tuesday and Wednesday of this week to discuss the fallout from the referendum, and the European Parliament will also hold a special session.

For the UK in particular, the first taste of the new medicine as the potential consequences of the vote began to sink in was so bitter that by Sunday afternoon around three million Britons had signed a petition to have another vote. As it attracted more than 10,000 signatures, the petition will have to be reviewed by Parliament, but any verdict will not be legally binding.

A repeat of the plebiscite is considered highly unlikely, especially as many leaders of the EU and its member states – with the notable exception of German Chancellor Angela Merkel – in addition to the European Parliament – advised a quick, clean break.

What effect a vacuum in the UK’s leadership could have was also a topic in light of Prime Minister David Cameron’s prompt resignation, both as prime minister and leader of the Conservative Party, fulfilling a pledge made before the referendum began.

Cameron said, however, he would not invoke Article 50 of the EU treaty – starting the countdown to withdrawal – until his successor is named. This, many business and political leaders feared, could lead to months of uncertainty. The leadership of the UK’s parliamentary opposition was also in disarray as over the weekend 12 of Labour Party leader Jeremy Corbyn’s shadow cabinet resigned or were removed from office amid internal calls for his ouster as punishment for not supporting the Remain campaign enthusiastically enough.

On the weight of the referendum vote with financial and stock markets crashing, the pound Sterling fell sharply against the US dollar while the Bank of England promised to “do whatever it takes to stabilize the market.” Moody’s slashed the country’s credit rating but the European Central Bank said it was prepared to provide additional liquidity for financial markets if needed.

In another bit of fallout, the referendum’s outcome also increased the likelihood that Scotland would try again to break away from the UK, after having rejected independence by a vote of 55% to 45% in 2014. In a televised speech on Jun. 24, Scotland’s First Minister Nicola Sturgeon said she would ask Scottish Members of Parliament not to give legislative consent to initiating formal steps to trigger the withdrawal process.

There were also fears that that the British vote could encourage other EU-skeptical member states to withdraw, as well as having repercussions for continued peace in divided Ireland and Northern Ireland and inspiring separatists in Spain’s Catalonia region to once again push for independence.

In the US, the political and business sectors worried that, post-Brexit, the chances of finally concluding the Transatlantic Trade and Investment Partnership (TTIP) between the US and the EU looked bleaker than ever as the UK has traditionally been the bloc’s most actively pro-trade member.  The news is nevertheless sure to please TTIP opponents, especially in Germany.

The European Chemistry Council, CEFIC, which together with its UK counterpart, the Chemical Industries Association, (CIA), actively supported the Remain campaign said it respected the outcome of the referendum but stressed as before, that “the EU opens markets and reduces trade barriers for UK industry, benefiting society.”

For the German chemical industry association Verband der Chemischen Industrie (VCI), President Marijn Dekkers, until the end of April CEO of Bayer, said the German grouping “deplored” the Brexit vote, as it had “always been committed to the political and economic unity of the European Union.”

Especially now, at a time of timid economy recovery in Europe, Dekkers said the UK’s leaving is “a negative signal for further economic development.” Less economic growth in the EU member states and weaker export business will be the consequence, he predicted. The UK is Germany’s sixth largest trading partner in chemicals and pharmaceuticals. But, Dekkers said “the political damage weighs just as heavily.” Alongside differences about refugee policy, he said the referendum is the second setback this year for the historic project of European unification, adding: “We all need a Europe which is politically unified and economically strong.”

CEFIC emphasized that the UK is an important trading partner for other EU countries, contributing on average 9% (€46.3 billion) to the 28 member countries’ total sales of €531 billion, The single market’s trade surplus with Britain came to €2 billion over the period 2007-2014, and sales by other EU countries to the UK totaled €20.3 billion in the same time frame.

In the weeks and months following the referendum, CEFIC said the governments of the EU member states must “work hard” with the European Commission to secure the right framework for establishing new arrangements. Consultants Frost &Sullivan said they were currently working with clients to assess, review and plan for the future as the UK leaves.

In a joint appeal, leading business federations in France and Germany said EU countries should respond to Britain’s departure by working even more closely together to limit the turbulence caused by the shock, adding that, "Europe must reunite, recover its confidence and go on the offensive.”

Separately, British chemical producers underscored that the UK government must secure the best exit plan. “It was not a decision our sector wanted, but we fully respect the wish of the people for change,” said Steve Elliott, CEO of the CIA.

Elliott added that the chemicals sector “looks forward to playing its part to help carve out a new role for the country, maximizing UK chemical and pharmaceutical competitiveness and jobs in the economy.”

Most importantly, he said, “whether we like it or not,” the EU chemicals legislation REACh “will have to apply in the UK.” Apart from that, the UK’s industry will need to study the implications of the EU’s review of the Emissions trading System (ETS), Elliott suggested.

For UK-based countries, European financial analysts said the currency plunge could be positive in the short term but negative in the longer term. For the EU as a whole, a British exit could cost as much as 1% of chemical industry growth over the next two years, some predicted.

Within the chemicals and related sectors, the pharmaceutical and biotech industries are expected to be hardest hit by Brexit.  The UK’s BioIndustry Association (BIA), a trade group representing bioscience companies, has argued for months that a vote to leave would be damaging. Changing the current arrangement would lead to disruption, expense and significant regulatory burdens as a new system is developed, said Steve Bates, the organization’s CEO.

Bates said a key reason for the UK to remain in the EU is that it has had “a strong voice to influence EU regulations that impact the UK.” Leaving means “losing this voice but still having to mirror regulation that we have no influence over,” he commented.

The BIA chief noted also that the UK is “the headquarters of choice for many US companies looking to enter the European market” but this is now threatened. Following a British exit, the UK will either have to accept European legislation that it cannot influence or, alternatively, develop new rules of its own at its own expense, he said. What’s more, similar (if not identical) regulatory systems will need to be established.

The biggest repercussion from the UK exit for the chemicals-pharmaceuticals sector will be changes in the way drugs are approved and tested throughout Europe, or at least where this activity takes place. The London-headquartered European Medicines Agency (EMA), which administrates a single application for drug marketing authorization in all EU member states, faces a potential relocation to the continent.

This move would have consequences for the agency’s staff, which includes what one observer called “840 of the world’s most respected regulatory and scientific experts.” According to reports, Italy, Sweden and Denmark so far have offered to provide a new home for the EMA.

In an opinion voiced in the run-up to the referendum, the British House of Commons research and technology committee said leaving the EU would cost the UK “substantial funding” for life sciences in particular.