Notwithstanding the increased uncertainty of the procedure and, whisper it, the possibility that Remain advocates now have a road-map to actually avoid Brexit one must still operate on the basis that the vote last June will still result in the UK leaving the EU.
And, in this scenario, despite what you may have seen or heard, there really is no upside for Ireland in the UK actually leaving the EU. There has been talk of some potential FDI gains and possibly some EU institutional office transfers but they are comfortably outweighed by the downsides. They include, but not exhaustively, the impact on Irish exporters of a devalued Sterling, the political uncertainty over a hard border with Northern Ireland, the loss of a traditional ally in EU negotiations and the wider instability of the fifth largest economy in the world withdrawing from the second largest economic block on the planet.
We might take those and briefly run through them.
Ireland has punched above its weight in attracting FDI over the years and 2015 was the strongest year on record FDI jobs growth. Despite the high profile investors and clusters of companies that are here – ICT, Med Tech, Pharma, BPO, FinTech – it will surprise some that just 9% of those at work in Ireland are in FDI companies. Most of the possible FDI ‘wins’ for Ireland tend to focus on financial services companies but that ignores a number of relevant factors. Ireland’s unemployment rate has fallen from 15% to 7.7% in the last four years and there is a constant battle for more and more skilled workers – as is the case in most high tech economies. Our office vacancy rate in the centre of Dublin is below 5% with rental rates rising as the recovering building sector tries to get back up to speed. Property prices are rising also, though at levels that won’t scare those familiar with the London housing market. The overall picture suggests that FDI wins are possible but with a strong pipeline already in place it will be of marginal overall impact.
Of deeper concern is the recent near parity of the Euro and Sterling and how that impacts Irish exports to the UK. Since 2012 Irish exports run to more than 100% of our GNP – we are an island nation that has to trade to thrive. Of those exports close to 20% or €35bn go to the UK while a comparable level of UK exports move in the opposite direction, including 5% of all its goods exports. These make the UK our top European trading partner and only second to the US on a global scale. Perhaps less obviously, Ireland is the UK’s fifth largest trading partner.
So, the point is clear: anything that is bad for trade between our countries is going to be bad, most typically, for Irish workers and UK consumers. The exchange rate volatility at the moment makes Irish exports to the UK relatively more expensive including things like holidays to Ireland where UK tourists make up about 40% of our visitor numbers (but about 13% of spend as UK visitors tend to stay for shorter periods).
Much comment has been made about the political relationships on the island of Ireland and the determination not to return to a hard border. Everyone is agreed on this objective, and the fact that the free movement of goods and people pre-dates membership of the EU certainly helps, there still remains the simple fact that it is going to be very difficult to square the circle of having one land border between the UK and the rest of Europe left open. I’m sure diplomatic skills in this sphere have overcome greater challenges but uncertainty in any respect of the progress made on North/South relations is a source of concern.
Broader than the simple East/West and North/South dimensions to the Irish view of Brexit is the wider political and economic destabilisation that the UK beginning a process of leaving the EU entails. First off is the narrower EU political dimension; the UK and Ireland tend to see many issues through the same prism at an EU level and have often provide mutual support across the negotiating tables of Brussels. In the absence of the UK ‘voice’ the positions advocated by Ireland in Europe will now lose a regular supporter.
Wider than any of this however is the turmoil created for investors by the intention, but no clear roadmap, for the fifth largest economy in the world to leave the second largest trading block. This doesn’t just impact our immediate bi-lateral relations but has a potential destabilising effect on the global economy. As one of the most openly trading economies in the world, our exports of goods and services in 2015 were 118% of our GNP figures (a more accurate measure for Irish national accounts). We export widely but the three man blocks are the US, the UK and the wider EU with the three blocks covering about 80% of our goods exports. So, anything that destabilises the wider international economic environment and undermines the markets for our exports is bad news for Ireland.
Finally, the numbers have just been crunched by our own Department of Finance and a government think tank, the Economic and Social Research Institute. In a report published on the 7th of November they highlight the prospects for Ireland of a ‘hard’ and so-called ‘soft’ Brexit. It doesn’t make for pretty reading here in Dublin.
The study examined the impact on the Irish economy ten years after the UK leaves the EU.
In a soft Brexit scenario – which is very hard to see being negotiated – where Britain remains part of the European Economic Area as Norway is now, the economy would contract by 2.3% and unemployment would rise by 1.2%.
In the event of a hard Brexit, with tariffs imposed on goods and services going in and out of the UK, Ireland’s economy would shrink by 3.8%, unemployment would rise by 1.9% and average wages would fall by 3.6%. Breaking up is, as the song goes, really hard to do.