Editorial: Brexit, pursued by Brussels

Some experts have argued that we should have seen it coming: the signs of the British public leaning towards exiting the European Union were there, fuelled by anger and disillusionment, and yet a sense of cautious, naïve optimism prevailed.

When Boris Johnson, the former mayor of pro-remain London and prime minister hopeful, argued in the Daily Telegraph yesterday that “the pound remains higher than it was in 2013 and 2014” just hours before the currency collapsed to a 31-year low, any last bit of optimism about how things might yet work out was surely gone.

Things have been falling apart quickly – Friday’s events wiped off more than $2 trillion from global markets, the steepest fall since the collapse of Lehman Brothers in 2008 and trigger for the global recession.

The UK economy alone lost enough money to pay for 40 years of EU membership and, in fact, just the shares in taxpayer-owned financial services firm Royal Bank of Scotland dropped so much that the loss in that one stock alone was the equivalent of a year’s worth of contributions to the bloc.

So, where do we go from here? To start with, that “we” might be a much smaller community than the “we” of a week ago. Scotland is making moves to become independent and that vision is being welcomed by Brussels: Alyn Smith, MEP for the Scottish National Party, received a standing ovation this afternoon when calling on the EU to stand by Scotland.

Sadiq Khan, who now faces the prospect of seeing the city he set out to lead fall apart around him, demanded access to the single market immediately as the result became clear, and it is easy to see why: potential investors in startups have started pulling out, while other startups currently headquartered in London are considering leaving and European startups are putting their expansion plans on hold, such as Germany-based Axel Springer-backed fintech company Number26, which raised $40m only a week ago with the specific aim of entering the UK.

The issues are particularly poignant for these fintech companies – a sector that chancellor George Osborne has been very keen on supporting. Currently, they can be headquartered in London but operate across the EU without facing additional regulatory hurdles in those markets. In a post-Brexit world, startups would lose that right, which may not necessarily be the nail in the coffin since they could, with a lot of time and expenses, take those hurdles, but it would be significantly easier to merely relocate to a place like Dublin, which is already making a play to attract these very businesses.

Meanwhile, Dame Julia Goodfellow, president of Universities UK, said on Friday morning that Brexit will “create significant challenges for universities”.

Higher education institutions stand to lose not just significant amounts of research funding – the UK received €8.8bn ($9.4bn) in cash between 2007 and 2013 – but also face the danger of human capital flight. The simple question that any researcher will have to ask themselves is whether they want to enter or stay in a country where they may be cut off from funding or unable to influence where funding is directed (which would be the reality in the case that the UK goes for the Norway option).

Students may think twice about choosing to come to Oxford, Cambridge, Imperial College or Cardiff if it means paying significantly higher fees for EU students and no ability to travel across Europe for international students.

The lack of funding and researchers would inevitably have consequences for the amount of spinouts that British universities can generate – at a time when more spinout funds were beginning to emerge in the country. But what, exactly, would they invest in if the initial research never happened?

It is not looking much rosier for government venturing in the UK either. Many initiatives rely on cash from Europe, such as its Horizon 2020 program or the European Regional Development Fund, which may not be quite as obvious once capital trickles through to industry via a vehicle such as Finance for Business North East that hardly gives away the origin of the money in its name.

The European Investment Fund (EIF), a highly active investment body of the European Union, issued a statement on Friday saying that the “EIF will actively engage with the [European Investment Bank] and relevant European institutions to define the EIF’s activity in the UK as part of the broader discussions to determine the future relationship of the UK with Europe and European bodies.

“At present, EIF will continue to act within its current statutory remit and will not change its approach to operations in the UK.”

It is a considered approach, yes, but also a warning that the status quo may only remain for now.

The truth, of course, is that nobody knows what will happen over the next few months. Many are arguing that David Cameron handed Boris Johnson a poisoned chalice when he refused to invoke Article 50 himself.

David Allen Green, a legal commentator for the Financial Times, has repeatedly argued that the longer Article 50 is delayed, the less likely it becomes that it will ever be triggered at all. The EU, while furious, has no authority to force the UK out and the referendum was merely advisory.

But as the days, weeks and months will go by before the UK government puts its new leader in place and makes its decision whether to push the red button, economic, political and societal damage will continue to be afflicted on the country. And those consequences will linger even if Brexit never happens.