Britain faces up to waning influence on global stage
Britain faced the stark reality of crumbling influence on the world stage on Sunday as turmoil triggered by the vote to exit the EU plunged the UK into domestic political instability.
EU leaders were preparing a timetable that would see the UK leave the bloc by the beginning of 2019 in the rapidly accelerating fallout from last Thursday’s referendum that shook the postwar European order, rocked financial markets and claimed the scalp of British prime minister David Cameron.
Mr Cameron will address parliament for the first time since the vote on Monday, with both his Conservative party and the Labour opposition in the throes of bitter leadership battles.
John Kerry, the US secretary of state, will visit Brussels and London to discuss the crisis as Washington reassesses its relations with London. “The US must face the fact that the UK will likely be less of an effective and reliable partner in global affairs,” said Jim Stavridis, former Nato supreme commander.
London was facing imminent loss of power over European rulemaking for financial services, a vital sector for the UK economy, the outgoing top British official in the European Commission warned in an interview with the Financial Times.
Jonathan Hill, who resigned at the weekend as EU commissioner for financial services, said Britain now faced being forced to abide by European banking rules shaped in Berlin, Paris and Frankfurt on priorities dominated by the eurozone.
“The voices that would be present at the table without Britain there — the voice of the French financial services industry, German industry, Dutch, Irish — will clearly be heard,” Lord Hill said.
Erik Nielsen, chief economist at UniCredit, said the resignation of the commissioner meant that “whatever influence the UK had in the EU is completely gone as of this weekend”.
Lord Hill warned that it was unlikely British-based banks would be able to preserve “passport” rights allowing them to serve clients across the bloc, not least because these required acceptance by the UK of free movement of people from the EU. “I can’t see that flying given the weight of immigration as an issue in the referendum debate,” he said.
Other senior officials in Brussels said they believed passporting for UK-based institutions was “dead”, a blow to London where more than a third of trading in euro-denominated derivatives currently takes place. Several big banks, including HSBC, JPMorgan Chase and Goldman Sachs have begun preparations for a potential shift of some operations to Dublin, Paris and Frankfurt.
The domestic political chaos set off by the shock referendum result deepened on Sunday as both the ruling Conservative party and the Labour opposition were engulfed in furious leadership battles.
Jeremy Corbyn, the hard left Labour veteran who was elected party leader last year, was under growing pressure to step down after he sacked Hilary Benn, his shadow foreign secretary and alleged coup plotter, prompting the rapid resignation of nine other shadow cabinet members.
Alarmed by the large chunk of Labour’s electorate that voted Leave on Thursday, moderates in the party were angered by Mr Corbyn’s lukewarm support for the Remain cause and wanted him replaced before a potential early general election.
Mr Cameron’s resignation on Friday meanwhile triggered intense manoeuvring over who would replace him as Tory leader in time for the party conference in October. The candidacy of Boris Johnson, the former mayor of London and early favourite, gained momentum on Sunday with the reported backing of Michael Gove, the justice secretary. The two former journalists led the mainstream Leave campaign.
Mr Johnson is likely to face a challenge from Theresa May, the pro-Remain home secretary. But moves were also under way by allies of Mr Cameron and George Osborne, the chancellor, to find a third “anyone but Boris” candidate.
Against this background, Mr Cameron will meet his 27 fellow EU leaders on Tuesday in Brussels for a tense session to try to work out a timetable for negotiations on Britain’s departure. German chancellor Angela Merkel, French president François Hollande and Matteo Renzi, Italy’s prime minister, will hold talks in Berlin today to prepare for the meeting.
Officials in Brussels said plans were being laid for formal negotiations to start on January 1 next year. Under Article 50 of the EU treaty, talks must be completed in time for an outgoing member to leave two years later.
But under those rules, Britain has to invoke Article 50 on its own. Mr Cameron has said he will leave the decision to his successor. Mr Johnson and other senior Leave campaigners have indicated they are in no hurry to set the ball rolling on exit talks.
Leading figures in Brussels and some EU foreign ministers have called for the UK to act quickly. But Ms Merkel said she would not push for an immediate withdrawal. “There is no reason to be particularly nasty,” she said.
In an article for the FT, Chris Grayling, the pro-Brexit cabinet minister, said all sides needed time. “So Article 50 will not be triggered until a considerable amount of informal preparatory work has been done, here and in discussions with EU partners,” he wrote.
Further complicating the outlook, Nicola Sturgeon, Scotland’s first minister, raised the prospect of a Scottish veto on Britain’s departure. Scotland voted with a 62 per cent majority in favour of Remain and Ms Sturgeon has emphasised the country’s determination to stay in the EU.
She told the BBC she believed a “legislative consent motion” would need to be passed by the Scottish parliament to approve Brexit. Although that view is disputed in London, she said if a vote was required, she would call on the Edinburgh assembly to reject it.
Global financial markets are braced for further volatility after Friday’s turbulence, when the pound plunged to its lowest level in 30 years and European bank shares sank 18 per cent.
As the initial shock is replaced by concern over how deep a shadow the decision will cast over the world economy, the pound and bank stocks will remain under the sharpest scrutiny.
The Japanese yen, US Treasuries and gold will be in heavy demand should the flight to safety accelerate when markets open in Asia.
Jaime Caruana, head of the Bank for International Settlements, the central bankers’ bank, warned on Sunday of further instability, but said financial systems were “more resilient” to shocks than during the financial crisis of 2008.
“There is likely to be a period of uncertainty and adjustment,” he said. “I am confident that uncertainty can be contained and that adjustments will proceed as smoothly as possible.”