Five Things to Look For as Britain Starts to Divorce the EU

EU Council President Donald Tusk holds British Prime Minister Theresa May's Brexit letter, delivered by Britain's permanent representative to the European Union to give notice of the U.K.'s intention to leave the bloc under Article 50 of the EU's Lisbon Treaty, in Brussels on March 29. The Article 50 negotiations over the next two years, Dalibor Rohac writes, might end with no deal, no EU reform and an independent Scotland. Yves Herman/reuters

This article first appeared on the American Enterprise Institute site.

By triggering Article 50 of the Treaty on European Union on Wednesday, the United Kingdom is one step closer toward turning the outcome of last year's referendum into reality. The road ahead, however, looks bumpy.

The two-year negotiations can end with the U.K. crashing out of the EU

It is possible that Article 50 negotiations will lead to a dead end. Without an agreement, the United Kingdom would leave the EU at the end of the two-year negotiation period without keeping any formal economic, political or security-related ties to common EU institutions.

That would be disruptive for the U.K. and the EU, and would not be in America's interest either. The U.K. plays an important role in organizations such as Europol and the European Defence Agency and should continue to do so even after leaving the EU.

Technical barriers to trade would cause economic damage. Unless there are explicit mutual recognition arrangements in place, the U.K.'s exports to the EU (and vice versa) could become subject to the same inspections, certifications and other barriers as imports from other parts of the world. This would be in spite of the fact that the day after leaving the EU, the bulk of the EU's single-market rules and standards would still apply in the U.K.

Avoiding such an outcome should be a priority for everyone involved.

Being legalistic is unhelpful

There is no blueprint for Brexit negotiations, so any course for the negotiations will be, to some extent, arbitrary. Yet the EU's chief negotiator, Michel Barnier, suggested that the exit agreement, including a financial settlement, has to be concluded before any negotiations about future trade ties can proceed.

The U.S. administration should therefore encourage everyone, including EU-27, to keep an eye on the big picture, instead of drawing red lines.

Making immigration a centerpiece of negotiations doesn't help

In principle, it is still possible for the U.K. to leave the EU without leaving the single market. It could become, like Norway or Iceland, a member of the European Economic Area, or it can negotiate a series of bilateral agreements with the EU, like Switzerland. Doing so would minimize the possible economic downside of leaving, without foreclosing any future options.

The only reason Theresa May has ruled out this path so adamantly has to do with immigration. The single market entails free movement of people.

What is missing from the discussion in the U.K. is that under existing treaties, single-market countries already have substantial space to restrict access to welfare and public services as well as immigration itself through means such as proof of employment or of sufficient funds to sustain oneself.

This could have been an opportunity to reform the EU

There are growing voices in the EU that are calling for an explicit recognition of the fact that there are multiple approaches toward integration, or a "multi-speed Europe." Countries like Sweden, Denmark, Poland, Hungary and the Czech Republic are not rushing into the eurozone (Denmark enjoys an explicit opt-out).

Under better leadership, Brexit negotiations could have been an opportunity to reform governance in the eurozone while granting a looser associate status to countries that choose to stay out—possibly including the U.K.

This may well be the end of the United Kingdom

Or the end of the over 300-year-old union between England and Scotland, that is. To the ire of Westminster, Scotland's first minister, Nicola Sturgeon, has secured the backing of the Scottish Parliament to organize a second referendum on Scotland's independence.

If allowed to take place by the U.K. Parliament, the referendum promises to be a divisive and messy affair, just like its previous iteration in 2014. Worse yet, it will inevitably compound the chaos that former Prime Minister David Cameron unleashed by putting the U.K.'s EU membership to a plebiscite last year.

Related: Theresa May trips Article 50: On with the smoke and mirrors

Dalibor Rohac is a research fellow at the American Enterprise Institute. He is a visiting junior fellow at the Max Beloff Centre for the Study of Liberty at the University of Buckingham and a fellow at the Institute of Economic Affairs.

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