Is No deal Worse for Ireland than the UK?

This question is important in so far as some elements in the Tory party and the DUP are hoping that Ireland and the EU will back down on the backstop at the last minute. The short answer is NO, but there may be some softening around the edges and creative language to make it more sellable to HMG and the HoC. “No Deal” however is looking increasingly possible or even likely, given that even at “5 minutes to midnight” the cabinet still can’t agree among themselves.

I have written extensively about the backstop for the best part of a year and indeed have believed some sort of Irish Sea arrangement would be needed after discussions in UCD about a week after the Referendum. There however seems to be increasing anger from the Brexiters that insignificant Ireland  is defying “the will of the people” and must be bullied into submission by its former Colonial masters. The fact that if Ireland were still a part of the UK, as Ireland is so overwhelmingly pro EU, the referendum result would have been “Remain” seems to escape them.

Some commentary is sabre rattling, has been going on for months, and the Irish will take no notice as previously discussed here. This earlier piece concludes with:

In conclusion then, sabre rattling towards Ireland will not work and indeed has been and will be counter-productive. In the long term, if indeed the UK leaves the EU, Ireland should be a very important ally. Far more is achieved by cooperation than belligerence. And England – or at least those ‘little Englanders’ who are such ardent supporters of Brexit – need to wake up and realise that their country is no longer powerful enough to ride roughshod over its smaller neighbour. Indeed, economically that particular boot may very well soon be on the other foot.

Brexit will of course damage Ireland in the short term. All the economic models predict this, the only difference is to the extent of the damage. It is not the purpose of this article to discuss this and most models are for a fairly soft Brexit scenario. A “No Deal” Brexit will be such a disaster for the UK that it seemed impossible – indeed it still seems impossible given the Armageddon it will cause to the UK in the short term. In the longer term two LSE economists, Swati Dhingra and Josh De Lyon, have just published a book: What would it be like? -on the realities of a No Deal Brexit (pub 8th Nov) which I have not had time to read, but the reality seems grim – unsurprisingly the worst of all outcomes.

In recent days some commentary has had a nastier tone – if a Hard Brexit trashes the UK economy that will be absolutely fine provided Ireland suffers more. The DUP of course need to add their tuppence to the belittling of Dublin campaign. Here is a classic example:

This is bizarre on many levels, but two points jump to mind immediately. The first is that the NI economy is far more dependent on IE than vice versa with something like 33% of NI exports going to Ireland but only 1.3% of Irish  exports going to NI. The second is that in a “No Deal” scenario (Brexit with a hard border) there is a clear majority for a United Ireland (56% pro, 40% against 4% undecided). The irony here is inescapable: the DUP doing more in 3 years to ensure a United Ireland than SF has done in the past 30. The monetary threat is also laughable as previously discussed on PP here.

My analysis would be that Ireland will suffer less than the UK and indeed in the medium term “No Deal” would be very good for Ireland. There are of course some economic models which show that Ireland will be nearly as badly affected as the UK so the future is uncertain. Even if that were the case the backstop’s premier purpose is to ensure that peace on the island of Ireland continues. This is far more important to Ireland than pure economics.

I would prefer not to have to find out and am a backer of a People’s Vote in the UK but I have compiled a short list below of reasons why I think Ireland will be more successful than the UK after Brexit.

  • Ireland is much better prepared for Brexit than the UK. Full economic modelling and war gaming was carried out before the referendum and was ready to be put in place immediately. Cameron was so confident of victory, that HMG had no plans in place for a leave outcome. Neither did the Brexiters. Only the BoE hand done serious preparation. The UK has being playing catch up ever since.
  • Ireland will remain part of the EU and will have all the EU trade deals, Euratom, etc. and have its entire operating system intact. The UK will have to start from scratch.
  • Ireland has full support from the EU. The backstop is seen as essential for the GFA and the peace process. This chimes very much with the EU whose first and foremost mission is to ensure peace in Europe. Most of the EU member states are small and to show membership is worthwhile it must fully back Ireland. Considerable EU emergency funds will be available for Ireland if needed. The UK is alone.
  • Ireland had a disastrous bank crash after the GFC but has recovered phoenix-like. Crisis management structures were put in place which were incredibly effective and are now being put to excellent use. There is a coherent and focused Brexit policy, with universal cross party support and indeed from a super-majority of the general public. This is in stark contrast to the UK.
  • Preparations for a “No Deal” Brexit are way ahead of the UK with major port infrastructure projects, ferries e.g. the Brexit Busting Ferry and major efforts to keep companies prepared.
  • The real economic performance figures show that Brexit so far has not only not slowed the Irish economy, it has turbocharged it.  The Economic and Social Research Institute (ESRI) have revised the projected 2018 growth figure up to 8.9% and the 2019 figure to 4.5%. The 2017 growth rate was 7.8%.  UK growth by contrast has gone from being the best to worse performer in the G7 and is in the 1.5-2% region. A fixed loss of growth is much easier for Ireland to deal with. A 2% loss would likely put the UK in recession but be easily bearable by Ireland.
  • There are considerable upsides in expansion of banking from UK relocation and EU headquarters e.g.  B of A, insurance, legal services, aviationincluding a 3rd runway for Dublin Airport, tech, and British and NI companies relocating fully or in part  to Ireland. Indeed this is already happening.
  • Opinion polls show a clear majority in NI for a United Ireland in a “No Deal” scenario. This has been a national aspiration for nearly a century and many see this as an opportunity too good to miss. Many Irish would be prepared to go through considerable economic hardship to bring this about.
  • In the past the UK and Ireland have competed for FDI. With Ireland remaining  in the Single Market it is likely to capture a far greater share.
  • Ireland’s dependence on the UK for exports has been declining for decades. It was 11% of the total in 2016 and may well drop below 10% this year.
  • Ireland is one of the few countries with which the UK has a substantial trade surplus – the trading power asymmetry is nowhere near as weighted in the UK’s favour as might be expected – see the earlier Sabre Rattling article.
  • The Agribusiness sector is however at risk, but Britain will still need feeding so this is not likely to suffer greatly. Indeed with chaos at Dover/Calais etc.demand could increase.

As usual comments are welcome! There may be more points I have missed so please provide! I may have missed out upsides for the UK, which include increased arms sales to regimes the EU refuse to deal with, tax evasion and these mythical trade deals none come to mind.

Comments

  1. Jonathan Mills -

    It’s all about investment. That was the experience from the Economic War in the 1930s, and will determine the outcome of Brexit (which is actually a very similar exercise). If Ireland can maintain a coherent and consensual approach, maximising investor certainty as to what can or will happen, we will sail through this. Great survey of the situation.

    1. Sean Danaher -

      Yes I’m sure this is true and thanks for your kind words.

      My perception at least is that the Irish have handled Brexit well so far and have been consistent, honourable and thoroughly professional. The Abortion Referendum has also played very well abroad, the Presidential election also but did not get a great deal of coverage. A very good year in terms of reputation and image, which must help investor confidence.

      The same can’t be said for the UK – it is too depressing to even start but the UK’s reputation has nose-dived this year. Brexit was always going to be very difficult to do well, but the sheer incompetence of the current government beggars belief. If Brexit goes ahead there are likely to be years of uncertainty and Ireland will look like a haven of stability in comparison.

  2. Samuel Johnson -

    A good summary; agree with all of it. It’s been quite striking in the last year the contrast between chippy, condescending Brexiters who imagine Ireland is hugely dependent on the UK and the calm indifference of the Irish, notwithstanding a few Casandras who are pro-British (eg Ray Kinsella) or bending over beyond backwards to be even-handed (eg Dan O’Brien).

    No doubt there will be adverse consequences but we all know the country has suffered far worse, even recently, and bounced back. And if anything the sense of resilience has grown. There could still be “exogenous factors” that could compound problems, a trade war between the EU and US eg, but overall I and most people I know are optimistic.

    For what it’s worth I’m increasingly convinced we will outlive the UK.

    1. Andrew (Andy) Crow -

      “For what it’s worth I’m increasingly convinced we will outlive the UK.”

      Samuel, there’s a growing consensus in Scotland lining up for independence to improve the odds that you are right about that.

      Brexit hard, soft or (the fanciful) ‘no deal’ offers Scotland nothing useful.

      I agree Sean, that for Ireland in the EU it will be business as usual with some disruption for a changed relationship with the UK.

      For the UK all bets are off because everything is to play for and from scratch. And the population is split down the middle in its attitude to Brexit across all social classes, with the rift dividing both dominant political parties.

      And I’m pretty sure Scotland will vote with its feet and leave the UK. It will rapidly be clear to the English electorate which way the financial advantage of union was skewed.

    2. Sean Danaher -

      Thanks Samuel

      if Ireland is critically dependent on any individual country it is the US rather than the UK. Ireland needs to protect and enhance its place as the natural location for the US to use for the European operation of US companies. Furthermore Ireland exports at least twice and going on three times as much to the US as the UK.

      Trump of course is a worry. I have heard rumours of a phone call between Trump and May where Trump spent the first five minutes saying how much he loved and admired Ireland – much to May’s bafflement! Of course there are many Irish American on the top Trump team and the St Patrick’s Day bash goes on in Washington as ever. We may be OK.

      Another worry if Brexit goes ahead and the UK moves towards a “hostile environment” there will be a large surge of Eastern Europeans choosing Ireland rather then the UK. This is not itself an issue but there are already very big strains in Ireland particularly in housing and health. It is imperative that unlike the UK massive resources are redirected to boost infrastructure, housing and health/social services.

      The analogy is very imperfect but the mood in Ireland at present seems to be similar to that of the first Blair government. A time of immense hope but it all went horribly wrong in the UK over around 20 years. It was really the GFC which was the wrecking ball and I hope to read Simon-Wren Lewis’s new book: The Lies We Were Told: Politics, Economics, Austerity and Brexit https://www.amazon.co.uk/Lies-Were-Told-Economics-Austerity/dp/1529202132 is as good as I anticipate.

      I think the FG people are extremely competent, Leo Varadkar, Simon Coveney, Helen McEntee, Neale Richmond and Mareid McGuinness spring to mind immediately. At the end of the day FG are a neoliberal EPP right of centre party and may not have the the economic and philosophical competence to manage housing and health as needed. There needs to be a Social Democratic counterbalance which could be SF but they do need to distance themselves from their pIRA association and support the prosecution of wrongdoing – I don’t care if it is a terrorist act or war crime – both are equally obscene, horrendous and wrong.

      Sorry I got a bit off topic there but yes Ireland is in a far better place than the UK at present.

Write a reply or comment Comments Policy

Your email address will not be published. Required fields are marked *

Name *