Today, the UK decides if it stays or leaves the EU.
If the UK votes for a Brexit, what will happen tomorrow? Nothing.
That’s right, nothing.
OK, maybe the markets will go a bit crazy.
And Prime Minister Cameron may be pressured to resign — he has been a firm supporter for staying in the EU.
But tomorrow, even after voting in favour of leaving, the UK will be part of the EU. And it will be for a while.
It may not even leave at all.
As David Allen Green recently pointed out in his Financial Times legal blog, the referendum is only advisory.
That is, no matter what the British vote for, the UK government doesn’t have to act on it.
It can choose to ignore the results.
So a vote for ‘LEAVE’ on the referendum may wreak havoc on the markets in the short term.
But it will not mean anything until the British government decides to invoke Article 50 — the exit clause for members wanting to leave the European Union — of the Lisbon Treaty.
Article 50 states the following:
‘1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it. A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.
5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.
As Green writes, there are three things to note from Article 50.
First, any member of the EU may leave in accordance with its constitutional requirements.
That is, any member can leave the EU. But the manner in which they leave is not specified. In the case of the UK, the parliament will most likely need to give approval.
But so far, the UK government has not been specific as to what would be required.
The second is that the Member state will have to notify the European Council of its intention of leaving. So until the UK government invokes Article 50, the UK is still in the EU.
And lastly, once the EU invokes Article 50, there is no way back. Britain has a mere two years to renegotiate 40 years of treaties. From entry requirements and trade deals to foreigners living in the UK, and Brits living abroad.
The Brexit debate has come up quite unexpectedly. And whatever the outcome, the British referendum is a lose-lose situation for the UK.
If Britain decides to stay, it will be a decision made out of fear. Fear of changing the status quo and leaving the stability of the EU.
The debate has brought up issues and feelings — such as austerity, immigration and loss of sovereignty — that have been troubling British society for a while.
And those big issues will still be there if Britain votes to stay in the EU.
A vote for leaving will create instability in Britain. And this instability may spread, crippling a Europe already debilitated by economic and social problems.
The long term repercussions are unknown, as no country has left the EU before. It could trigger a domino effect.
One thing is for sure. After the vote, Brexit promoters will have to work hard, because the UK government will most likely try to ignore a result in favour of leaving.
That’s why no practical arrangements have been made in case of a ‘LEAVE’ majority. The UK government is expecting the ‘STAY’ vote to win.
Can the UK government ignore a result like that? It will definitely try to put off invoking Article 50.
And if it is a very close vote, it may even have another referendum in the hope of producing a different outcome.
According to the recent polls, the murder of British Labour MP Jo Cox – who strongly supported a ‘STAY’ vote– has increased the UK public’s desire to stay in the EU. But it still seems like it will be a very close vote.
And the world will be watching closely.
For The Daily Reckoning
PS: Selva recently joined the Port Phillip Publishing team as our macroeconomic analyst. She works closely with The Daily Reckoning editor Vern Gowdie on his advisory service, The Gowdie Letter.