Brexit shock triggers race to salvage EU

Paul Taylor/Reuters

Britain`s shock vote to leave the European Union - the first time a member state has chosen to pull out - sends the post-World War Two unification process that has underpinned peace and prosperity on the continent into reverse.

The loss of Europe`s second biggest economy and one of its two main military powers triggered a scramble to shore up the remaining 27-nation bloc, amid a rising tide of eurosceptic populism, rather than any radical move towards closer union.

Britain`s vote plunges the EU into its third major crisis of the decade after the euro zone debt turmoil that began in Greece and last year`s influx of a million migrants and refugees.

Despite months of seesawing opinion polls, few in the top echelons in Brussels, Berlin or Paris had believed voters would ultimately risk a so-called Brexit.

British exit negotiations could be long and divisive, with Germany and northern allies keen to keep London as close as possible to the EU market while others, notably France, may seek a tough line to discourage further fragmentation.

So the priority for the governments and institutions at the heart of the EU will be to negotiate a smooth divorce and prevent contagion.

"Europe will continue but it must react and rediscover the confidence of its peoples," French Foreign Minister Jean-Marc Ayrault tweeted in a first reaction. "It`s urgent."

While financial markets react instantly to shocks such as Brexit, the deeper impact on economies takes time to show. The International Monetary Fund has said Brexit could leave Britain`s economy more than five percent smaller by 2019 than if it stayed in the bloc. The vote has added to uncertainty over the global economy.

The exit process is also unclear. Article 50 of the EU treaty, which sets out how a state can leave the bloc, offers little detail. Although it provides for a two-year withdrawal, many say it will take longer and some fear the process will become bitter, disrupting European affairs across the board.

Anti-EU nationalists around Europe, energised by the British Leave campaign that took on and defeated the political and business establishment, are already demanding their own referendums on EU membership or on whether to abandon the euro.

ANGRY PUBLIC MOOD

Poland`s Europe minister, Konrad Szymanski, a member of a eurosceptic nationalist government that has clashed with Brussels over the rule of law since it was elected last year, said the EU risked losing more members if it did not reform.

EU diplomats point to Denmark, the Netherlands and possibly France as states where political pressure for a British-style vote will be strongest, but they see no chain reaction of other countries voting to secede.

Continental governments are likely to reject calls for plebiscites, but they all face a similar angry public mood, fuelled by fear of globalisation, falling living standards for many poorer workers and anxiety over immigration.

Those same forces have propelled outspoken billionaire Donald Trump to the brink of the Republican nomination for the U.S. presidential election. Trump applauded the result, saying Britons "took back control of their country". Most other U.S. leaders had warned Brexit would weaken Europe and undermine Washington`s interests in the region.

Calls for the European Union to do less, and to focus on essentials, have already begun. But there is little agreement on what those essentials should be.

Since its inception, and especially since France rejected a European defence community in 1954, European unity has been a political project promoted through economic interdependence.

"Europe advances in disguise," Jacques Delors, the architect of the EU`s single market and common currency, famously said.

Spanish Prime Minister Mariano Rajoy said the EU should be reformed to concentrate on the economy. Others in France and Germany want to see it do more to control Europe`s external borders and manage migration to address citizens` concerns.

Yet migration policy is deeply divisive.

Hungarian Prime Minister Viktor Orban, who defied Brussels by shutting out migrants, plans a referendum in October to reject EU policy of sharing out quotas of asylum seekers stranded in Greece and Italy.

Nigel Farage, leader of the UK Independence Party whose rise prompted Prime Minister David Cameron to call the plebiscite, gloated that the EU was now "dying" and said he hoped this was "the first step towards a Europe of sovereign nations".

PLUNGING SUPPORT FOR EU

EU leaders set out to rebut such notions. European Council President Donald Tusk, the man who chairs the bloc`s summits, declared: "On behalf of the 27 leaders I can say that we are determined to keep our unity as 27."

Quoting the German philosopher Friedrich Nietzsche, he added: "What doesn`t kill you makes you stronger."

But they are also aware of plunging public support for the EU in most member countries.

An anti-immigration eurosceptic came within a whisker of winning Austria`s presidency last month, and eurosceptics in the Netherlands and Denmark have won referendums against aspects of EU policy in recent months.

The British vote is a far more dramatic blow and will prompt soul searching and conflicting reflexes about the way ahead.

"This is a bad day for the European dream," said former European commissioner Pascal Lamy, the Frenchman who was right-hand man to Delors in the 1980s and 1990s.

Britain had always been the most semi-detached of EU members. It acceded belatedly in 1973 after shunning the foundation of the European Coal and Steel Community and the European Economic Community in the 1950s. And it never joined the euro or the Schengen zone of passport-free travel.

Yet it has wielded strong influence as the most free-market country and the bloc`s main financial centre, and its departure is bound to sap the EU`s self-confidence and change the power dynamics among remaining members.

For four decades, Europe has been steered by a balance among German political federalism, France`s tradition of a state-led economy, and Britain`s economic liberalism and free-trading.

WITH BRITAIN GONE

With Britain gone, Berlin faces a much more difficult life as the bloc`s reluctant hegemon, with an economically weak French partner and a group of southern countries that want it to underwrite their debts and their banks` deposits.

There are several potential areas for battles among the remaining EU countries: what terms to give a departing Britain, whether to deepen euro area integration and how to respond to the widespread loss of public confidence.

Britain has been the strongest supporter of a free trade and investment partnership under negotiation with the United States, which could become a collateral casualty of Brexit, given public opposition in Germany and Austria as well as France.

The eight other countries outside the euro zone - including Sweden, Denmark and Poland - have lost their strongest ally in London and will be a weaker minority in the EU.

"Brexit will oblige some countries to take a decision. They can`t stay one foot in and one foot out," former Italian Prime Minister Enrico Letta told Reuters, citing the four central European countries that form the so-called Visegrad group, as well as Denmark and Sweden.

Letta said the 19-nation euro zone must move forward as the core of "ever closer union". That vision sends a chill through Warsaw and Prague.

For now, differences between Germany and France, which both hold elections next year, are too wide to permit an early initiative to deepen the monetary union.

But European Commission President Jean-Claude Juncker insisted Brexit was not the beginning of the end for the bloc.

Answering that question from a reporter in Brussels, Juncker replied simply, "No." This drew applause from EU officials in the room as Juncker left after taking just two questions.