On 23 June 2016, the UK voted in a referendum to exit the EU. So how do the EU and UK set about coming to an agreement?

Inevitably there will be a considerable amount of negotiation before the UK and the EU part ways, but these discussions can only start once Article 50 of the Treaty of Lisbon has been triggered by the UK. It has been widely speculated that Article 50 will formally be invoked before the end of March 2017.

What is Article 50?

Article 50 allows a member state, in this case the UK, to notify the EU of its withdrawal and obliges the EU to try to negotiate a ‘withdrawal agreement’ with that state. Here is a summary of the main points:

Any member state may decide to withdraw from the EU in accordance with its own constitutional requirements.
A member state which decides to withdraw shall notify the European Council of its intention. The EU shall negotiate and conclude an agreement with that state, setting out the arrangements for its withdrawal and taking into account the framework for its future relationship. It shall be concluded on behalf of the EU by the Council, acting by a qualified majority, after obtaining the consent of the European parliament.
The treaties shall cease to apply to the state in question from the date of entry of the withdrawal agreement or, failing that, two years after notification, unless the European Council, in agreement with the member state concerned, unanimously decides to extend this period.
It should be noted that the man who helped to write Article 50, former Italian prime minister Giuliano Amato, has said it should never actually be needed.

"My intention was that it should be a classic safety valve that was there, but never used. It is like having a fire extinguisher that should never have to be used. Instead, the fire happened."

Potential scenarios 

Once Article 50 is invoked, the clock starts ticking and the UK has two years to negotiate the best deal it can with the EU.

It will be David Davis’s Department for Exiting the EU, which now has hundreds of staff, and the government’s legal department, that will be primarily involved in extracting Britain from the EU and defining its future relationship. Those negotiations could be complicated by upcoming elections across Europe in 2017, namely in the Netherlands, France and Germany, particularly if there are changes in government.

At the end of the two years, most likely in April 2019, there will be four potential scenarios. Scenario one is that a deal is reached. Any such deal must be voted for by the remaining 27 EU member states, with a qualified majority, or 72%, voting in favour.

The second scenario is that there is no deal. EU treaties will automatically expire, and the UK and EU would trade according to the rules of the World Trade Organization.

In the third possible scenario, the negotiations could be extended, but only with the agreement of the other 27 EU member states.

The fourth and final scenario would arise if the agreement reached is considered to be a ‘mixed agreement’. In this case, it would have to be voted for by each of the 27 national parliaments. This would probably take far longer to negotiate, and therefore make a deal less likely.

During the two-year negotiation period, EU laws still apply to the UK, and the UK would continue to participate in other EU business. However it would not participate in internal EU discussions or decisions on its own withdrawal.

Sources
http://openeurope.org.uk/today/blog/the-mechanics-of-leaving-the-eu-explaining-article-50/
https://www.theguardian.com/politics/2016/oct/02/article-50-timescale-theresa-may-brexit
http://www.telegraph.co.uk/news/0/what-is-article-50-the-only-explanation-you-need-to-read/

 

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.