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Will Brexit Really Happen?

By Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.

It seems unthinkable that following the largest democratic exercise in British history, the expressed wish of the people – that Britain leave the European Union – may not come to be. Yet, nobody can say with complete certainty that Britain will not remain a member of the European Union. Here are the reasons why.

The Referendum Vote was not Legally Binding

In constitutional terms, the result of the vote does not have to executed. The vote’s legal status was as an advisory referendum to the British Parliament, and thus, the Parliament has the final say in the matter.

The British Parliament has a Very Large Majority that Favors Remaining in the EU

A very large majority of the current Parliament’s members support Britain remaining a member of the European Union and they may become tempted not to take the electorate’s “advice”. Three members of Parliament have already made it clear they will refuse to vote for the necessary legislation required to effect the departure: David Lammy and Catherine West (both Labour members) and Kenneth Clarke (Conservative, and a veteran ex-Cabinet Member and pro-European eminence). This is a very small number, but in theory there is nothing to stop this number growing to become a majority.

Scotland Might be able to Block an Exit

Scotland has a large measure of self-government within Britain and might be able to block passage of the requisite exit legislation. Scotland’s governing Scottish Nationalist Party lost an independence referendum only a few years ago and as Scotland voted heavily to Remain within the E.U., the Scottish government would feel it has a case to halt proceedings. However, leading constitutional lawyers have now determined that the Scottish Parliament would be unlikely to effect a legal blockage.

The “Establishment” is Heavily in Favor of Remain

A majority of Britain’s politicians, business and labour leaders, and public officials, are strongly in favor of Britain remaining within the E.U. and generally regard last week’s vote as Britain’s worst national disaster since the Second World War. Many of them will act, largely behind the scenes, to try to stall and possibly even prevent Britain’s exit. One well-known British business person, Richard Branson of Virgin, has already gone on record as demanding that a second referendum process be given serious consideration by Parliament.

Exit May Take Years

Shortly after the result became clear on Friday morning, it became clear that the leading politicians controlling the Leave campaign would not be in any hurry to begin exit proceedings. The Prime Minister, David Cameron, made clear that morning that he would not take any steps to do so either, and would instead quit his job before October, by which point Britain’s governing Conservative Party would choose his successor, who would then have the responsibility of implementing any exit by officially informing the European Union that Britain wishes to begin an exit procedure. Britain’s Conservative Party is heavily split on the E.U. issue, although its membership tends to support Leave. A new leader may feel a need to call a General Election which in theory could lead to the ceding of power to the opposition Labour Party, whose members are heavily pro-Remain.

Prolonged Uncertainty may have Serious Economic Consequences

Since the referendum, the British Pound and stock markets have fallen sharply. Some economists are warning that an exit may require serious spending cuts and tax raises, and upon anticipation of this, economic decisions could arguably be taken that might collectively trigger a recession. If this fear increases as part of a long-drawn out exit process, it may be that after a respectable period of time, the new British Government will withdraw from the process, and plead that it tried but was unable to execute the exit responsibly. If an acceptable period of time has elapsed since the original referendum, this would be more politically acceptable, and could theoretically even be accompanied by a new referendum on the same question.

Doubt Over Whether Johnson and Gove Really Wanted to Win

The bookmaker’s favorite to become David Cameron’s successor as Prime Minister, Boris Johnson, was the de facto leader of the Leave campaign. However, his body language when victory became apparent did not look triumphant at all. He has kept a very low profile over recent days. There has been speculation that Johnson’s real hope was a narrow defeat for Leave that would put Britain in a very strong bargaining position, but still within the European Union, while keeping him at the top of the tree as the national leader of anti-E.U. opinion. If so, he now may wish to find a solution where he can become Prime Minister, begin the exit process, and then find a convenient place from which to climb down in the face of “impossible” or “unforeseen” conditions.

Bitter Remain Camp Won’t Let Go

The vote has produced a level of personal bitterness and a refusal to accept a democratic verdict that is without parallel in modern British history. Many who voted Remain tended to be the better-off and more successful, and they are not used to having their passports, assets and wings clipped by a different section of the electorate, certainly not since the early 1970s. The narrowness of Leave’s margin of victory is also an aggravating factor: it would have been reversed by less than a 1% swing. There is an ongoing agitation for either a “Parliamentary coup”, a re-run, or at the very least “technical only” exit from the E.U. Such a rejection of the democratically expressed will of the people is unusual, but is bolstered by the level of anger, the older age of the Leave voters, and a feeling that powerful forces are waiting in the wings to somehow engineer a Remain.

It Takes Two to Tango

The strongest odds should still be placed on a British exit from the European Union, but it is far from a done deal. Ironically while all the focus has been on the British side, it may be the rest of Europe that decides there will be no going back. In fact, there is a fear within the heart of the European Project that the E.U. may begin to unravel, and that the best way to prevent this is to punish Britain to make an example for other countries. It is a fact that leading officials within the E.U. have behaved impeccably in accepting the British referendum result, so ironically once Britain formally asks for an exit under Article 50, the rest of the E.U. might be very generous in expediting the divorce proceedings.

Adam Lemon
About Adam Lemon

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.

 

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