Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
How To Play The 2018 Cannabis Boom - 18th Dec 17
Should You Consider Investing/ Buying Gold or Bitcoin? - 18th Dec 17
Gold EFPs: Absolute Proof that the Paper Gold Price is a Fraud - 18th Dec 17
Gold – Technical Obfuscation, Fundamentals, Predictions - 18th Dec 17
Stock Market Final Thrust is Likely - 17th Dec 17
Never Mind Tea Leaves, Here’s a Strong Signal from the Economic Dashboard - 17th Dec 17
As Bitcoin Breaks All-Time Highs Near $18,000 Its Future Has Never Been So Uncertain - 17th Dec 17
Best Time / Month to Buy a Used Car From a UK Dealer - 16th Dec 17
Relief Rally in Gold Mining Stocks - 16th Dec 17
Amid Bad Fundamentals, Gold Sector Rally May Have Begun - 16th Dec 17
Gold Bullish on US Fed Interest Rate Hike - 16th Dec 17
The LORAX Explains What Happened to Sheffield's Street Trees 2017 - 16th Dec 17
Bitcoin Trading Alert: Bitcoin Pauses – Will Appreciation Follow? - 16th Dec 17
SanDisk Ultra 128gb 100mbs Micro SD Card for Smartphone's Speed Test - 15th Dec 17
Inflation is Spiking Globally… Bond Bubble Bursts in 3… 2… - 15th Dec 17
Sheffield's 'Real' LORAX Defending the Trees From the Labour City Council Patrol Units - 15th Dec 17
Stock Market Decline Signals are Near - 15th Dec 17
Santa Is Putting Christmas On The Blockchain And Saving Billions - 14th Dec 17
The Unprotected, the Protected, the Vulnerably Protected Classes—Which Are You? - 14th Dec 17
Gold’s Upside Target - 14th Dec 17
Year-end US Interest Rate Hike Again Proves To Be Launchpad For Gold Price - 14th Dec 17
2 Charts That Might Define the Fed’s Jerome Powell Era - 13th Dec 17
UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - 13th Dec 17
Stock Market Elliott Wave Forecasts - Is the World coming to the end? - 13th Dec 17
A Method Traders Can Use to Confirm an Elliott Wave Count - 13th Dec 17
Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - 13th Dec 17
A Former Wall Street Veteran: Good Traders Are Born, Not Trained - 12th Dec 17
Buy Gold, Silver Time After Speculators Reduce Longs and Banks Reduce Shorts to Continue? - 12th Dec 17
Masters of Economic and Political Illusion – in Taxes, Debt, Government, and Markets - 12th Dec 17
Approved Used Land Rover Main Dealer Real Customer Buying Guide - Hunters, Chester - 12th Dec 17
Gold Price 100% Bullish Signal - 12th Dec 17
Epic Stock Market & Fixed Income Bubble Will Not End Well - 12th Dec 17
Bitcoin can be stolen. Although Can’t be hacked - 11th Dec 17
Have Stocks Reached A Permanently Rigged Plateau? - 11th Dec 17
Trying To Beat The System Is A Fatally Flawed Investment Strategy - 11th Dec 17
Is This The Beginning Of The Next Silver Rush? - 11th Dec 17
The Dow Gold Ratio - 11th Dec 17

Market Oracle FREE Newsletter

Traders Workshop

What Happens to Britain’s Borders After the Brexit? Potential to Fracture the U.K.

Politics / BrExit Apr 05, 2017 - 12:45 PM GMT

By: STRATFOR

Politics

Splitting from the European Union will inevitably strain the United Kingdom's territorial integrity. Those pushing for Scotland and Northern Ireland to secede from the United Kingdom are using Brexit to justify their agendas. Brexit will also open a debate between the central government in London and the country's devolved governments about who will control the powers that will be repatriated from Brussels. With authority over policy areas such as agriculture, fisheries, industry and the environment returning to the United Kingdom after Brexit, the administrations of Wales, Scotland and Northern Ireland will push London to transfer many of those attributions to them.


The United Kingdom has a devolution system, according to which different policy powers from the United Kingdom's Parliament have been transferred to assemblies in Cardiff and Belfast, and to the Scottish Parliament in Edinburgh. The system was created to acknowledge the United Kingdom's distinctive cultures and identities. So in addition to the negotiations it faces to determine its status after it departs the European Union, the central government must also prepare for the issues that will arise among the United Kingdom's constituent countries.

An Independence Push in Scotland

When Scotland held an independence referendum in 2014, 55 percent of voters chose to remain in the United Kingdom. One of the main arguments against secession was that an independent Scotland would not automatically become an EU member and thus would lose access to free trade with the bloc.

After the Brexit referendum passed in 2016, Scottish authorities lobbied for the United Kingdom to remain a member of the EU's single market (an area where people, goods, services and capital move freely) to minimize the effect of leaving the bloc. But Prime Minister Theresa May's government says it will withdraw from the single market to negotiate a free trade agreement with the European Union instead. In response, Scotland's governing Scottish National Party said that such a change in the status quo justifies holding another independence referendum. Scottish First Minister Nicola Sturgeon said the vote should take place in late 2018 or early 2019, before the Brexit negotiations are over. She hopes that by gaining independence before the Brexit process is resolved, negotiators would be forced to consider Scotland in the final agreement, ideally fast-tracking its accession to the European Union.

However, Scotland's referendum cannot happen without authorization from the United Kingdom's Parliament. May has said that now is not the time for another Scottish referendum, because she does not want it to interfere with the Brexit process. The British government faces a dilemma: If it continues to reject a referendum, nationalism in Scotland could grow; but if it authorizes a new vote, the result would be impossible to predict. According to an opinion poll published on March 13, support for independence among Scots is at 48 percent. There likely will not be another Scottish referendum before the Brexit process is over. But Scotland will continue to use the threat of a referendum as a negotiating tool with May's government, both to look for ways to remain in the single market and to get concessions from London.

The Complications of Northern Ireland

Northern Ireland receives millions of pounds in farming, fishing and structural subsidies from the European Union, as well as money to preserve the Good Friday peace deal. In 2015, the European Union sent Northern Ireland 320 million pounds ($402 million) in subsidies and around 50 million pounds in peace funds. This money will no longer be available when the United Kingdom leaves the bloc, meaning that the British government would probably need to seek ways to replace it. The United Kingdom's membership in the European Union also allows Northern Ireland to keep its border with the Republic of Ireland open, contributing to the pacification of the island. After Brexit, there is a chance that some kind of border controls will have to be introduced. The letter delivered by the British government formally triggering the Brexit included Northern Ireland as one of the main topics for its upcoming negotiations. In the meantime, an internal EU document with draft guidelines for the bloc's talks with the United Kingdom suggests that "flexible and imaginative solutions" will have to be found to preserve the Good Friday Agreement.

Northern Ireland is going through a phase of political turbulence. The Good Friday deal, finalized in 1998, brought decades of sectarian violence to an end. But the political system it created, in which unionist and nationalist forces share power, has also frequently led to inefficient governments. Frictions between the two largest parties, the Democratic Unionist Party (DUP) and the nationalist Sinn Fein, precipitated the fall of the government in early 2017. In the snap elections that followed, Sinn Fein performed strongly, potentially indicating a surge in nationalist sentiments in Northern Ireland.

When the period allotted to form a government expired March 27 without success, the British government gave the parties until April 18 to reach agreement. On the surface, the DUP and Sinn Fein are divided by issues such as a nationalist proposal to give Irish language official status in Northern Ireland. But Sinn Fein believes that its strong electoral performance and Brexit have improved Northern Ireland's chances of unification with the Republic of Ireland. According to the Good Friday Agreement, a unification referendum can happen if a majority of voters in Northern Ireland express their wish for it. A survey taken in late 2016, put support for a unification referendum at around 40 percent.

If the parties cannot form a government, the British government is legally authorized to take direct control of Northern Ireland, but this is something that May wants to avoid. Even if there is an agreement to temporarily unblock the current stalemate, the Good Friday Agreement is showing signs of exhaustion, and the Brexit process will create frictions between unionists and nationalists, which means that political instability will probably continue.

In late February, the Republic of Ireland's prime minister, Enda Kenny, said that the final Brexit agreement with the European Union should include a provision to let Northern Ireland automatically become a member of the European Union if it unifies with the republic. Then in early March, Fianna Fail, the Republic's main opposition party, announced that it is working on a plan to prepare the north and the south for unification. While both parties have said that unification is still a distant possibility, these moves show the extent to which Brexit will reopen discussions about the territorial and political future of the British Isles.

Seeking Advantage in Wales

Support for Welsh independence is low, with polls persistently showing less than 10 percent of the population in favor. Like their English peers, a majority of Welsh voters supported leaving the European Union in the 2016 referendum. But while independence is not an immediate threat, Welsh leaders are looking for ways to benefit from the Brexit process. First Minister Carwyn Jones recently warned that regulations on issues that affect Wales such as agriculture, which is currently an EU prerogative, should be transferred to Cardiff instead of London after Brexit.

Wales also expects to gain from whatever concessions London makes to Scotland. In the months leading to the Scottish independence referendum of 2015, for example, London promised to grant Scotland additional powers over taxes, welfare benefits and energy. In the coming months, London may offer new sweeteners to Scotland to appease secessionist sentiments. This will open the door for Wales to make its own demands. While the Welsh issue will not be nearly as pressing as the Scottish or Northern Irish questions, it will create yet another headache for May's Cabinet.

A Tussle Over Gibraltar

In Gibraltar, 96 percent of residents voted to remain in the European Union. It is a British Overseas Territory that participates in the EU's free movement of people, services and capital; but not in the free movement of goods or in programs such as the Common Agricultural Policy. The main activities of Gibraltar's services-based economy include financial services, tourism and online gaming. Roughly half of its workforce consists of EU citizens (mostly Spanish) who are daily commuters, and most tourists arrive to the territory by land. To make things more complicated, Gibraltar's territory is claimed by Spain.

Brexit poses two risks for Gibraltar. The government is worried that Gibraltar's exports will no longer have tariff-free access to the EU single market, especially because a free trade agreement will be easier to negotiate for goods than for services. It is also concerned about Spain unilaterally closing the border and isolating the territory (since the United Kingdom is not a member of the passport-free Schengen Agreement, identity checks already take place at the border). The government of Gibraltar excluded the possibility of leaving the United Kingdom and joining Spain, but it recently held talks with Scotland to jointly seek ways to remain in the single market.

According to a draft of EU guidelines for the Brexit talks, the Brexit deal would not apply to Gibraltar without a separate agreement between the United Kingdom and Spain. But Madrid will probably not pressure London too much over Gibraltar, at least during the early stages of the Brexit negotiations. Madrid and London will be interested in reaching a deal to protect the rights of the 300,000 British citizens who live in Spain and the 200,000 Spaniards who live in the United Kingdom, as well as to preserve their strong bilateral trade and investment ties. In the future, however, Madrid will gain some leverage it could use to negotiate the status of Gibraltar. To win approval for a free trade agreement would require the unanimous support from all EU members, which would give Spain veto power over the final deal.

Legal and Political Issues

The Scottish government has said it will seek to remain in the single market, either through independence or by a special agreement with the European Union as a member of the United Kingdom. Should Scotland become independent, it would not automatically become an EU member. The Scottish government has suggested that if it does become independent, while it applies for EU membership it could in the meantime become a member of the European Free Trade Association, a club of non-EU countries (including Iceland, Liechtenstein, Norway and Switzerland) that participate in the single market. Should Scotland remain in the United Kingdom, Scottish authorities have suggested emulating Denmark, where parts of its territory are in the EU, while others (such as Greenland and the Faroe Islands) are not.

In Northern Ireland's case, secession from the UK would almost certainly lead to EU membership. Northern Ireland would join the Republic of Ireland, which already is a member of the EU. A similar situation occurred in 1990 after German reunification.

Without leaving the United Kingdom, it would be difficult for Scotland or Northern Ireland to remain in the single market, because any free trade deal between the European Union and United Kingdom would probably generate contradictions. The free trade agreement likely would cover a shorter list of goods and services than the single market agreement. To solve these contradictions, border controls would have to be introduced to ensure that goods and services moving across the borders comply with the existing trade agreements in each territory. If Northern Ireland leaves the single market with the rest of the United Kingdom, a border control with the Republic of Ireland would have to be introduced. And should Scotland manage to remain in the single market, border controls with England would have to be instituted.

Migration issues should be easier to solve, as neither the United Kingdom nor the Republic of Ireland are members of the passport-free Schengen area. This means that both countries could agree on joint migration controls at airports and ports. There would still be some issues to solve connected with working rights, because under this scenario EU citizens would be free to work in Scotland and Northern Ireland, but not in England or Wales.

A Political Question

Even if there were technical solutions to these issues, the negotiations between the United Kingdom and the European Union will be mostly political. EU officials have said that Britain cannot selectively pick the aspects of EU integration it wants to keep. At a time when Euroskeptic sentiments are on the rise in Europe, EU leaders want to send a message home that leaving the EU is not a painless process. In addition, EU members like Spain in which domestic secessionist movements are strong would also be against making concessions to Scotland or Northern Ireland, out of fear that local independence groups could feel encouraged to demand the same. The British government also is unlikely to accept a settlement that would involve the introduction of internal border controls and differentiated visa systems among the devolved governments, out of fear that it could be the prelude to secession.

The British government will seek to find a balance between appeasing political discontent in the devolved administrations and remaining in control of the Brexit process. London will reassure regional governments that their interests will be represented during negotiations with the EU, and will keep them updated on the status of negotiations. London will also promise subsidies, investment, tax breaks and the assignment of EU prerogatives to the devolved governments. Considering the extensive list of policy areas that are currently under EU control but will soon be sent back to the United Kingdom, London will have a long list of topics to choose from when it comes to devolving powers. But London is unlikely to give Scotland or Northern Ireland a decisive role in the Brexit negotiations, or to make moves that would jeopardize the country's territorial integrity. As a result, in the coming years secessionist pressures could become hard to contain in the United Kingdom.

"Brexit's Potential to Fracture the U.K. is republished with permission of Stratfor."

This analysis was just a fraction of what our Members enjoy, Click Here to start your Free Membership Trial Today! "This report is republished with permission of STRATFOR"

© Copyright 2017 Stratfor. All rights reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis.

STRATFOR Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife