Summary

The referendum on whether Britain will leave the European Union will take place on June 23. The debate in Britain has been primarily about the economic and financial consequences of Brexit, as it is called. But while that is a fundamental issue, it is far from the only issue. The vote also revolves around questions of sovereignty and Britain’s strategic position in the world.

Geopolitical Futures uses a model that takes into account geography, politics, economics and defense. By examining a country’s imperatives (what it must do) and its constraints (what it cannot do) we can paint a picture of the U.K.’s outlook should it opt to leave or remain in Europe. As Europe continues fragmenting, Britain is pursuing a dual strategy to address its strategic challenges: It will work to adapt to the various crises in Europe while also looking beyond the Continent.

Our report’s main conclusions are:

  • Economically, the U.K. cannot afford to jeopardize its trade and investment relationships in Europe. Similarly, access to the British market is important for many European economies.
  • Economic impact studies regarding Brexit produced by all sides are highly unreliable due to their competing assumptions and use of diverse models.
  • A British exit from the EU would intensify the bloc’s fragmentation and Germany cannot afford to see countries with a large exposure to the U.K., like Ireland, destabilize economically. Therefore, should Britain opt to leave the bloc, both the EU and the U.K. will seek to formulate a trade agreement within a relatively short period of time.
  • If Brexit fails, Britain will act as a check on German power on the Continent and seek to prevent a strengthening of Brussels’ power over members.
  • The referendum will not affect Britain’s continued efforts to move closer to the U.S. The U.K. needs Europe, but with the EU in chaos, Britain’s dual strategy of influencing Europe while maintaining close ties to the U.S. will become more important than ever.

Introduction: The Brexit Debate

The referendum on whether Britain will leave the European Union is approaching. Many see it as a crucial test of the European Union – a vote to exit would be a crisis for both the European Union and the United Kingdom. The debate in Britain has been primarily about the economic and financial consequences of Brexit, as it is called. But while that is a fundamental issue, it is far from the only issue and perhaps not the most important one.

There are two other questions on the table. One is about sovereignty and the other is about Britain’s strategic position in the world. If Britain exits, these two questions will have driven the decision. The opponents of Brexit are focused on the economic consequences. Those in favor want a shift in Britain’s international political framework. They deny the dire economic consequences the opponents foresee.

The British have historically been distrustful of the European Continent. They feared being overwhelmed by the far more populous Continent and were afraid of wasting their resources by being drawn into Continental disputes. Britain’s focus was on its empire, and after that was lost, on the United States.

When the idea of European economic integration was first proposed in the text of the Marshall Plan, the British rejected the idea. They mistrusted the French in particular. But more important, Britain did not want to be lumped in with the rest of Europe in the Marshall Plan. It had been America’s partner in World War II, and felt that its relationship to the United States could not be the same as that of the liberated. Britain, after all, was one of the liberators.

Britain objected not so much to an economic union, but to another entanglement in Continental affairs. Where the Continent became more integrated under the European Economic Community (EEC), the British joined the European Free Trade Association, an association focused on Britain, Scandinavia and a few other members.

There was more than a geographic distinction between the two. The EEC was evolving in a direction that involved more than a free trade zone. Increasingly, European thinking was turning to the possibility of a deeper administrative and political institution. What emerged in the Maastricht Treaty, which moved Europe from the EEC to the European Union, was an entity that preserved the sovereignty of individual nations, but created a complex regulatory system that intruded on that sovereignty.

The British decided to join the EEC despite substantial unease, because they anticipated economic benefits and assumed they could contain the bloc’s intrusions on British sovereignty. Those assumptions proved to be somewhat more problematic than expected. Brussels’ intrusions grated on those who valued British sovereignty. But the real game changer was the dramatic economic decline in parts of Europe after 2008.

Opponents of the EU thought that if southern Europe had not been saddled with a euro that was priced to optimize Germany’s interests, the European schism might have been avoided. Britain had refused to join the eurozone. Being drawn into extraordinarily complex disputes on the Continent appeared foolish.

Britain has important economic ties with the Continent of course. But it also has close financial ties to the United States, in part because many American financial institutions wishing to do business in Europe chose to base themselves in London. The U.S. and Britain are intertwined on a range of economic and financial relations. In addition, Britain is a strategic collaborator with the United States, and was involved in Afghanistan and Iraq in ways other European countries were not.

There is an informal entity known as the “Five Eyes.” It is the incredibly intimate intelligence-sharing network of the United Kingdom and the four major nation-states that emerged from the British Empire: the Unites States, Canada, Australia and New Zealand. Five Eyes goes substantially beyond intelligence sharing, to include extremely close military relations.

This is a deep historical and cultural relationship, far deeper than any of Britain’s relations on the Continent. Given this alternative relationship and the deep economic ties with the United States, Britain has a multi-layered alternative to the European Union. Therefore, those who advocate for Brexit are not simply calculating the costs and benefits of relations with the European Union, but also the costs and benefits of creating a closer relationship with the United States to substitute for the EU. President Barack Obama’s statement urging Britain to stay in Europe certainly affected this view, but it is understood that Obama’s view does not represent the final word on the American position.

The argument for Brexit consists of five points:

      1. Europe is dysfunctional and its failures will harm Britain.
      2. Britain would not be alone if it left the EU; it could align with the United States.
      3. The fears of broken economic relations with Europe are unfounded, as European countries depend on their relations with Britain regardless of whether it stays in the EU and these relationships will continue.
      4. Further compromise of British sovereignty is not trivial, but reduces Britain’s room for maneuver.
      5. Britain has economic and strategic interests that do not correspond to those of the Continent.

The arguments for staying in the EU mirror the arguments against: First, few have denied that EU institutions are facing challenges and that Europe is in an economic crisis. However, the historical outcomes of such crises have been nationalism and war, and leaving the EU would not protect Britain from these threats. As a matter of national security, playing a leading role and managing the economic crisis is a better strategy than trying to stay isolated from the inescapable.

As for the second and third arguments, the economic relations with Europe are institutionalized, whereas those with the United States have no long-term definition or foundation. With the institutional foundation of Europe, Britain could retain the relationship with the United States while working to stabilize Europe based on reliable, if flawed, institutions.

To the fourth point, while British sovereignty matters, Britain’s decision-making is shaped as much by the United States or any other relationship as it is shaped by the EU. Any direction Britain moves would limit sovereignty.

Finally, after almost a quarter century of Maastricht, leaving the EU now would bring unknown and unintended consequences. Whatever the current problems of the EU, the anti-Brexit side thinks they are reparable without recourse to leaving the union. They think that even if all the arguments for Brexit were true, the unknowns are so potentially significant that they outweigh potential benefits.

The referendum will be held on June 23. Its outcome is unknown, but these are the arguments. We have spent more time on the arguments for leaving than staying because leaving is the challenger. The arguments for Brexit frame the counterarguments. Obviously, in any referendum, there are many claims and counterclaims, and the nuances of reasoning are lost in the desire to persuade. But when you listen carefully, these are the arguments and the issues behind them.

Having heard the arguments, let us turn to the details.

Britain’s Strategic Position

As Britons prepare to vote on the future of the country’s EU membership, understanding the strategic considerations behind the U.K.’s relationships with its partners is critical. The U.K.’s geopolitical challenges shaped its decision to join the bloc, and will also shape London’s relations with Brussels should British voters opt to leave the union.

The U.K. consists of a group of islands situated between the North Sea and the English Channel, a 21-mile strip of water that separates Britain from continental Europe. A map of the region from Britain’s perspective reveals its primary threats: from the northeast across the sea are the Nordic states, where the Vikings originated; in the south across the channel is France, Britain’s traditional rival; and further to the east, Germany, which became a major player on the Continent after unification in the late 19th century.

uk-perspective

As an island nation, Britain has a natural defensive barrier that other European countries lack, but decision-makers over the centuries were highly aware that invading armies could cross the channel. As a result, Britain’s chief strategic priority has been to minimize any potential security threats emanating from the other side of the channel and to prevent the rise of a hegemon able to dominate the Continent.

Britain also needs to maintain wide-ranging trade networks because it is an island. Britain built an empire in order to access goods and markets, but it created one of the world’s most powerful navies to protect both its shores and business interests. During the British Empire’s heyday, Britain was the leading power in Europe, shaping the balance of power on the Continent and forming a web of shifting alliances.

The two world wars changed Britain’s role. Britain was not successfully invaded, but its economy was shattered and the British Empire quickly disintegrated. Financially and militarily, the U.K. became more dependent on the U.S. for support. During World War II, under the Lend-Lease program, the U.S. shipped supplies and weapons to the U.K. in exchange for long-term leases on British military installations around the globe. After the war, Britain remained dependent on the U.S. financially, as the British economy struggled to recover.

Moreover, the creation of NATO formalized America’s role as the U.K.’s long-term defense guarantor. The U.K.’s growing dependency on the U.S. became especially apparent during the Suez crisis in 1956, when Washington pressured London to withdraw its troops from Egypt – underscoring the fact that the U.K.’s days of acting abroad without U.S. approval were over.

Therefore, Britain’s relationship with the U.S. is one of the cornerstones of British strategy. The U.S. maintains a troop presence in the U.K., and the two countries cooperate through NATO. For example, the largest U.S. Air Force combat base in Europe is located at RAF Lakenheath in Suffolk. The U.K. has deployed military assets in support of U.S. interventions, including the war in Iraq and coalition airstrikes in Syria. Moreover, the two countries maintain strong trade and investment ties. About 35 percent of British foreign investment goes to the Americas, and much of that to the U.S.

At the same time, following the two world wars, the U.K. was no longer in a strong position to shape developments on the Continent. Britain was not one of the founding members of the predecessor of the European Union, but as European economies strengthened and the U.K. sought to maintain influence in Europe, the British ultimately joined the EEC in 1973.

As a result of these shifts, Britain now has a dual strategy. It works to maintain a strong bilateral relationship with the U.S. while also remaining a player on the European Continent, in an attempt to retain some influence and balance any potential hegemons.

The end of the Cold War and expansion of the EU and NATO to former Soviet and Warsaw Pact countries heralded a new era of relative stability and high prosperity on the Continent. This transformation, however, also brought uncertainty about the nature of long-standing defense arrangements and alliances. The U.S. has dominated NATO since its inception and has also footed the bill for much of the alliance’s defense expenditures. But with Europe’s newfound stability and NATO’s expansion, Washington has been increasingly wary of its disproportionately large role in the alliance.

brexit-nato-defence-expenditures

For European states worried about the level of U.S. commitment to Europe in the future, the U.K. is a highly strategic ally. Britain boasts one of Europe’s most powerful militaries, despite some downsizing and a reduction in overseas operations over the years. While the U.K. spent about 2.44 percent of its GDP on defense in 2008, NATO estimates the U.K. spent merely 2.07 percent of GDP on defense by 2015. Nevertheless, the Royal Navy remains the second largest navy in NATO, after the U.S. Navy.

In 2015, according to data compiled by the Stockholm International Peace Research Institute, the U.K. was the fifth largest defense spender in the world after the U.S., China, Saudi Arabia and Russia. According to official NATO data for 2015, only the U.S., U.K., Poland, Estonia and Greece met the alliance’s target of spending 2 percent of GDP on defense.

While there is no European military, and EU Battlegroups remain a relatively small endeavor, the U.K. armed forces work very closely with their European partners, especially through NATO. The U.K. has deployed a small number of troops to the Baltic states as a part of Western efforts to boost defenses along NATO’s eastern edge following the onset of the crisis in Ukraine. The U.K. maintains permanent bases in Cyprus, which are important for European powers concerned about security threats in the Mediterranean region. While the U.K. has at times been reluctant to deploy its capabilities, it remains a critical military ally for European powers.

Why Britain Cannot Ignore Europe and the Single Market

Today, the U.K.’s economy is closely tied to the EU. While the U.K. has reduced its exposure to Europe somewhat over the past few years, the U.K. is still not in a position to ignore Europe. However, Europe’s economic challenges have led British businesses to increasingly look to markets beyond Europe.

Although British exports to the EU have grown over the past few decades in absolute terms, the share of U.K exports destined for the EU has decreased. In 2000, according to the U.K. Office for National Statistics, 54.3 percent of the U.K.’s total exports went to the EU. Fifteen years later, the EU purchased merely 43.7 percent.

A similar trend has emerged when it comes to U.K. firms investing abroad. In 2011, Europe made up about 56 percent of the U.K.’s outward foreign direct investment (FDI). By 2014, Britain’s investments in Europe amounted to only about 47 percent of its total outward FDI, according to government data. At the same time, U.K. investment in the Americas – and in the U.S. in particular – has been growing.

brexit-uk-exports-goods-services-european-union

However, this increased interest in markets outside of Europe does not mean that the U.K. can completely reorient its economy away from the European Union. A deeper look at the U.K.’s exports reveals that there is a structural shift underway, as the U.K. relies less on the export of goods and more on the export of services. While the importance of the export of goods to Europe has been declining, the export of services to Europe more than doubled between 2000 and 2015.

Over the past 15 years, Europe has consistently accounted for about 40 percent of the U.K.’s total services exports. Meanwhile, the U.K.’s services sector as a whole has been growing, and services are projected to account for half of overall exports within a decade. Therefore, Europe’s role as a leading importer of U.K. services will be increasingly important.

This is especially true when it comes to financial services. London has served as a financial hub for centuries, but its financial sector has boomed over the past few decades. Before the introduction of the EU’s single market, much of the financial activity in London revolved around British banks, though some U.S. and Japanese companies operated in the city and focused mainly on British or non-European activities.

This began to change with the implementation of so-called passporting rights, which allow for U.K. firms and foreign firms with operations in the U.K. to do business across the EU’s single market, without needing to open new branches or comply with separate regulations. EU businesses are able to do the same in the U.K.

These shifts have not only reinforced London’s place as a European financial hub, but further linked the British financial system with Europe. According to TheCityUK, an industry group, EU banks currently hold 17 percent of total bank assets in the U.K., worth 1.1 trillion pounds ($1.6 trillion).

At the same time, although the U.K. is not a member of the eurozone, euro-denominated assets of U.K.-based banks were worth about 1.3 trillion pounds at the end of 2015. For the British economy, London’s role as a European financial hub is significant: the financial sector and related services now account for nearly 12 percent of the U.K.’s GDP.

According to the Bank of England, financial services accounted for merely about 6 percent of nominal GDP in 1998. Britain is increasingly dependent on its financial services sector, and a significant amount of British economic growth, tax revenues and jobs thus remain tied to Europe.

Why Europe Needs the British Market

European powers are heavily invested in their relationship with the U.K. Germany, Europe’s largest economy, is very dependent on exports, which make up over 45 percent of the country’s GDP. With China’s economy slowing down and the European economy grappling with financial challenges, there are growing signals that Germany is starting to experience an exports crisis.

The U.S. and U.K. have provided alternative markets, where Germany can boost exports to make up for lost demand in other regions. At the same time, southern European economies are struggling with high unemployment and non-performing loans, which are especially a problem in countries like Italy and Portugal and are putting a serious strain on the region’s banking sectors.

The possibility of Britain leaving the EU presents a significant challenge for the European Union. The European Union needs British import demand, investment, funding and defense cooperation. The U.K. is the fourth largest importer in the world. A study by the British National Institute of Economic and Social Research found that about 16 percent of the European Union’s goods exports go the U.K.

EU member states’ trade ties with the U.K. vary, but several European economies send a significant amount of their exports to the U.K. According to U.N. Comtrade data, nearly 14 percent of Irish exports went to the U.K. in 2015. Nine percent of the Netherlands’ exports and 7.4 percent of Germany’s exports also went to the U.K. in 2015. With countries like Germany facing reduced global demand for their goods, European governments cannot afford to lose their businesses’ access to British customers.

brexit-exports-to-uk-as-share-of-countrys-total-exports-2015

The U.K. is also a major contributor to the EU’s budget – U.K. Treasury statistics show that 12.6 percent of the EU’s revenues came from the U.K. in 2015. When the EU expanded to include less developed countries, especially members of the former Warsaw Pact, the older EU members took on a greater financial burden in the hope that expansion would boost investment opportunities and enhance the bloc’s security in the long term.

As a result, in 2014, the U.K. was one of only 10 net contributors to the EU budget – along with Germany, France, the Netherlands, Italy, Sweden, Austria, Denmark, Finland and Ireland. For these wealthy European economies, a British exit could mean an increased financial burden in order to help the bloc meet its financial needs. Alternatively, the EU could opt to cut its expenditures.

The U.K. is also a significant source of investment – and thus jobs – in other EU countries. According to data compiled by Santander Bank, 8.2 percent of foreign investment in Germany came from the U.K. in 2012; in the Netherlands, U.K. investment represented 10.5 percent of the total. Similarly, in France, Britain contributed 10.7 percent of foreign direct investment in 2014. For Italy, it was 9 percent in 2012. European governments fear that the U.K. leaving the bloc would jeopardize both the status of these investments and the future flow of FDI.

brexit-percent-total-fdi-positions

Debunking Speculation on the Impact of Brexit

Debates over the impact of Brexit revolve not only around competing facts, but more important, around competing assumptions. The Institute for Fiscal Studies assembled data from eight major institutions that used quantitative modeling to show the long-term impact of Brexit. All eight – which include international organizations, British think tanks and government departments – came up with completely different numbers for the long-term impact on GDP.

For example, the U.K. Treasury’s model showed that if the U.K. leaves the EU without signing a trade agreement with the bloc, and simply follows the rules of the World Trade Organization (WTO), its GDP would be about 7.5 percent lower 15 years after leaving the bloc than if the country stays in the EU. A study by PricewaterhouseCoopers, modeling a similar scenario, found GDP in 2030 would only be 3.5 percent lower than if the U.K. remained in the EU.

The British government, as well as other opponents of Brexit, have argued that in the long term, regardless of the kind of trade arrangement concluded with the EU, a U.K. outside of Europe would be permanently poorer. Opponents of Brexit maintain that leaving the bloc would reduce investment and significantly disrupt trade.

According to the U.K. Treasury’s long-term estimates, the annual loss of GDP per household after 15 years would be 2,600 pounds if the U.K. (like Norway) joined the European Economic Area (EEA), 4,300 pounds if it negotiated a bilateral agreement with the EU and 5,200 pounds if the U.K. opts to merely adhere to WTO rules.

In the short term, the government has argued that a Brexit would immediately push the U.K. into a recession; wages and house prices would fall, unemployment would rise, the sterling would fall by 12 percent and GDP would decline by 3.6 percent. Under another, bleaker short-term Treasury estimate – linked to the possibility of the U.K. leaving the single market and defaulting to WTO membership – GDP would fall by 6 percent two years after Brexit.

Proponents of Brexit, on the other hand, have argued that the U.K. would benefit from not being part of the EEA because it would no longer have to contribute funds to the EU. They argue that leaving the bloc would reduce red tape and allow the U.K. to negotiate its own trade arrangements with international partners.

A group called Economists for Brexit issued a study that showed GDP in 2030 would be 4 percent higher if the U.K. left the EU and did not negotiate a special deal with the bloc. The group has argued the U.K. would save 0.8 percent of GDP by not having to pay its EU contributions, money that could be returned to U.K. consumers in the form of tax cuts.

Proponents of Brexit have also maintained that immigration to the U.K. has created downward pressure on wages. Leaving the EU would allow the U.K. to restrict immigration and control its own immigration policies.

There are a number of key factors that make economic impact studies produced by all sides highly unreliable. First, the implications of Brexit on the British economy depend on a range of policy decisions made by the British government, the governments of all other 27 EU member states, and the governments of about 50 countries that currently have trade agreements with the EU.

Moreover, no country has ever left the European Union, and the U.K. would thus be the first country to explore the implementation of the Lisbon Treaty’s Article 50, which governs the procedure for exiting the bloc.

The British government has argued that negotiating the U.K.’s exit, negotiating a new relationship with the EU and receiving the approval of all 27 member states involved is impossible within the two-year timeframe envisioned under Article 50. In fact, the government has argued that Brexit could trigger a decade of negotiations and regulatory uncertainties.

However, since no country has ever seriously explored Article 50, and since a major European economy has not negotiated trade agreements on its own for decades (the EU bargains with trade partners as a bloc) the accuracy of the government’s estimates for the length of negotiations and regulatory adjustments following Britain’s exit from the EU is highly questionable.

Furthermore, all impact assessments have adopted models that either ignore or assume certain policy choices. For example, the U.K. Treasury has, in its study of the immediate two-year impact of Brexit, modeled transition and uncertainty effects, as well as the extent of financial market volatility. The Treasury opted, however, not to model the impact of fiscal and monetary policy – in its short-term scenarios, monetary policy is held fixed and fiscal policy is assumed to be applied through so-called “automatic stabilizers.”

Similarly, proponents of Brexit have made certain assumptions that skew their data. Economists for Brexit, the only major group to produce a study showing a positive short-term impact of Brexit on national income, assumed that the U.K. would unilaterally remove all its tariffs. The different models are quite selective in the economic impact they choose to highlight: the U.K. Treasury’s quantitative long-term model does not focus on regulation or migration, while the Economists for Brexit study does not include FDI in its quantitative model.

What Will Brexit Mean?

But what all of these competing quantitative models fail to tell us is what the U.K.’s place in the world will be if it stays or leaves the EU. Geopolitical Futures uses a model that takes into account geography, politics, economics and defense. By examining a country’s imperatives (what it must do) and its constraints (what it cannot do) we can paint a picture of the U.K.’s outlook should it opt to leave or remain in Europe.

The first element that will shape Britain’s future, regardless of the outcome of the referendum, is the trajectory of the bloc. As Geopolitical Futures has outlined, the European Union is fragmenting. Countries from Greece to Hungary to France have been bending EU rules to suit their own domestic needs, and in some cases ignoring Brussels’ demands altogether.

At the core of the EU’s challenges is its inability to act coherently as a bloc. The principle of consensus-based decision-making has created gridlock on many issues and small countries have been able to force concessions from the rest of the EU. The diverging interests of a diverse set of sovereign states have reduced the impetus for compliance with EU schemes, while the bloc lacks effective means to enforce its rules.

New challenges, from migration to financial troubles, are putting more strain on the already divided EU and further undermine the bloc’s ability to act effectively. Regardless of whether it leaves the EU, Britain will face a union that is weaker, more divided and less able to implement decisions.

Nevertheless, if British voters opt to leave the EU, the U.K. will not become isolated. Countries’ strategies are constructed around long-term goals and threats. One of the U.K.’s chief strategic goals is to undermine any potential threats emanating from across the channel. So it is in the U.K.’s interest to prevent the rise of a hegemon in Europe that could dominate the Continent and present a threat to the U.K.

There is no such hegemon at the moment, but there are future contenders. Germany is currently the largest economy in Europe and the most influential power within the EU. As Europe continues fragmenting Berlin may become more assertive in protecting its interests on the Continent.

Then, there is Russia. Britain deployed a small number of troops to the Baltic states not only because they are NATO members, but also because Russian military actions in the Baltics would signal Russia’s intent to compete to become a dominant Continental power – a move that threatens British interests.

Russia may be far from the U.K. geographically, but a shift in the balance on the Continent and potential Russian naval aggression are concerns for Britain. The U.K., therefore, will seek to maintain close political and economic ties in Europe to preserve some influence and attempt to shape the balance of power on the Continent.

Economically, the U.K. cannot afford to jeopardize its trade and investment relationships in Europe. Similarly, access to the British market is important for many European economies. With Germany experiencing growing problems as global demand for its exports declines, Berlin will prioritize maintaining the ability to easily export to Britain.

As we outlined in our report on Germany’s invisible crisis, there are already signals that Germany’s economy is slowing down. There is evidence that German businesses are sacrificing revenues to boost exports in the short term. Some German exporters are cutting prices, especially in China. German banks are also under pressure.

Moreover, a British exit from the EU would intensify the bloc’s fragmentation and Germany cannot afford to see countries with a large exposure to the U.K., like Ireland, destabilize economically. Therefore, both the EU and the U.K. will seek to formulate a trade agreement within a relatively short period of time.

Concerned about the potential for more countries leaving – from debt-ridden southern European economies to Euroskeptic states in the east – and worried about prospects for increased Russian aggression along the bloc’s eastern borders, leading European governments will seek the U.K.’s cooperation on all issues, from trade to security.

Should the U.K. remain a member of the EU, the country will work to adjust its strategy to shifting dynamics within the bloc. The EU is facing several challenges, from economic malaise to migration and questions over the future of European integration.

The U.K. has long been a relative outsider in the EU, negotiating opt-outs and retaining its own currency. If Brexit fails, Britain will act as a check on German power on the Continent and seek to prevent a strengthening of Brussels’ power over members.

However, the EU’s weakening will give members greater discretion in terms of whether and how they implement bloc-wide decisions and regulations. Therefore, the U.K. will strive to avoid the collapse of the bloc, with the understanding that Brussels’ influence in London is eroding.

In addition, the referendum will not affect Britain’s continued efforts to move closer to the U.S. and explore opportunities in non-resource-oriented emerging markets. The U.K. needs Europe, but with the EU in chaos, Britain’s dual strategy of influencing Europe while maintaining close ties to the U.S. will become more important than ever. The U.S. is not only a more stable investment market and export destination, but is and will remain the U.K.’s primary security guarantor.

Conclusion

The Brexit referendum highlights Europe’s current state of fragmentation, with governments and voters across the bloc increasingly wary of the EU’s inability to cohesively address challenges. Since the end of World War II and the disintegration of the British Empire, the U.K. has implemented a dual strategy, seeking a close relationship with the U.S. while also playing a role on the European Continent.

As Europe experiences growing economic and political challenges, the U.K. is moving to boost its relationships outside of Europe, and especially with the U.S. – a large and relatively strong market. Nevertheless, the U.K. still needs access to European trade and investment, and retaining influence in Europe is integral to the U.K.’s geopolitical strategy. Regardless of how British constituents vote later this month, the U.K. will maintain close economic and political ties with European powers.