The Great British/EU break-up

If Britain opts to leave the EU, the ramifications for Ireland could extend far beyond frayed trade ties, writes Kyran Fitzgerald.

This weekend, Taoiseach Enda Kenny escaped to the Ring of Kerry, hoping to forget all his troubles.

No doubt he hoped that a mixture of hard sweat and mountainous beauty would buy him a few hours peace.

Amid all the gloom, one area of great hope and promise has emerged in the form of a burgeoning relationship between this country and Britain, a warming in relations best symbolised by the two reciprocal trips made by the countries’ heads of state.

Over the past four or five years, British and Irish bureaucrats have also been working much more closely on matters of common interest.

The heads of departments now meet as a matter of course to work out detailed programmes. Such cooperation has its origins in the intensive work carried out in the run-up to the Good Friday Agreement. The pace of co-operation has, if anything, accelerated since the Coalition took power in London in 2010.

But relations between London and other EU capitals have grown steadily more frayed. Since David Cameron announced, 18 months ago, his plan to hold a referendum on EU membership in 2017 if there is a Tory victory in the next general election, scheduled for next May, the prospect of a British withdrawal from the EU has been in play.

But it has left his EU partners feeling a mix of anger and coolness.

Its potential ramifications for Ireland are huge, if little understood and barely discussed. The sheer harshness of the downturn has left us in a self-absorbed state. It may be time to start looking about us, now, however. Events across the water could shake things mightily.

The idea of an exit may still appear somewhat far- fetched. However, it must not be dismissed. The recent dramatic economic rebound in Britain, while benefiting Irish exporters and migrants, has boosted the Tories’ chances of retaining power and holding such a referendum.

Moreover, the results of the European elections have highlighted the strength of the anti-EU faction in the country.

The prime minister has sought to take the wind out of the sails of UKIP, winner of the European elections in Britain, by picking a big fight with his European colleagues over the appointment of the former Luxembourg prime minister, Jean-Claude Juncker, as President of the Commission.

Fleet Street has been on a mission to demonise the incoming president, highlighting his smoking and drinking habits. The Daily Mail has referred to the ‘nicotine-stained hands’ of the ‘cognac-drinking’ Mr Juncker. Clearly, a British exit from the EU would be an event of seismic importance — and not just to the UK, assuming Britain does not shrink in size come next September amid the publication of the result of the Scottish referendum on independence.

The London-based Centre for Economic Performance recently warned that withdrawal from the EU would be a “dangerous move for the UK”. It has predicted losses to national output, ranging from 2.2% under an optimistic scenario to between 6.3% and a staggering 9.5% under a worst-case scenario, involving the withdrawal of foreign direct investment.

The Eurosceptic group contend that trade with the EU would not be greatly affected since Britain runs a trade deficit with the rest of the EU. It could negotiate trade agreements similar to those reached with Norway or Switzerland.

They contend that Britain could expand its trade with non-EU countries by negotiating trade agreements without being subject to constraints imposed by membership.

The centre however, warns that a reduction, or end, to trade openness with other EU countries would result in increases in tariffs and non-tariff barriers, resulting in losses that would outweigh any gains from a reduction in fiscal transfers from London to Brussels.

“Furthermore, contrary to popular belief, ceasing migration flows between the EU and other UK countries, one of the EU’s most basic principles, will also tend to decrease welfare, not only in the source region, but also in the destination one.”

The UK could lose skilled labour while the prospects for its citizens living overseas will also be diminished. For Ireland, such concerns are anything but academic.

We have a heavy investment in Britain’s economy and its continued success. The unexpected UK rebound of the past year has important spin-off effects for Ireland. Ireland received 1.6 million visitors from mainland Britain in 2013, one quarter of the total. A new joint visitor visa arrangement has just been agreed between the two countries, with the aim of boosting visitors from Asia.

It also accounted, in 2013, for 42% of food and drink exports from Ireland amounting in total to €9.9bn. Irish agriculture depends heavily on the British market.

A British exit ’Brexit’ would represent a major headache for exporters who must already deal with currency issues.

Britain’s labour market also remains critically important. In the year to March 2013, it absorbed one quarter of an Irish emigration total of 89,000. Migrants settling in Britain are much more likely to return eventually, bringing home capital and skills acquired there. Many others retain close ties, buying property in the home country. Britain acts as a major crucible for first-time Irish exporters. Not every country with 4.6 million souls has a market of 61 million people, including more than 30 million workers, on its doorstep.

If Britain were to catch a very bad cold even from an exit, we would all be wheezing and sneezing rather badly, here.

The former British foreign secretary, David Miliband, spoke to a conference in Dublin organised by Ibec and consulting group, Accenture.

He warned that reforms to the eurozone raise the prospect that they could render the position of non-euro members “untenable”. On balance, the real risk, in his view, is not of a UK withdrawal, but rather of an increased sidelining of Britain with all the consequences this entails for close allies including Ireland, Germany, Holland and Sweden. Should Britain negotiate various opt-outs, its voice will simply be heard less, if at all, by increasingly exasperated partners.

The German Chancellor, Angela Merkel, is alive to the risk, concerned that Germany would lose a natural ally in discussions on structural reforms across Europe, while the EU as a whole will lose, at least in part, the influence of what currently at least, is its fastest-growing economy.

Amid the difficulty lies opportunity in the form of increased diplomatic relevance and by extension, leverage for the Irish Government. You can bet your bottom dollar that the salespeople in the IDA are using the British exit pitch to counter the growing threat posed to projects by an increasingly FDI-hungry Chancellor, George Osborne. But exporters, in particular, will be fervently hoping that Ireland does not find itself in the position of having to negotiate old-style bilateral trade agreements with a Britain that finds itself spinning off into a new orbit, leaving its partners and suppliers scratching their heads and guessing as to its likely destination.

The British for long have favoured a cheap food policy and viewed the EU and its Common Agricultural Policy as an obstacle in this regard. Any withdrawal would represent very bad news for Irish agricultural interests. According to the IFA President, Eddie Downey: “the UK remains Ireland’s main market for agri-food exports, accounting for over 40% of our exports. It is important for Ireland and Irish farming that the UK remains a full member of the EU.” This view is also shared by Ibec’s O’Brien. His concerns extend to include issues around common standards and labour market rules as well as concerns that the UK could engage in aggressive tax competition. Other exporters could view the prospect of tighter border controls on this island as well as our neighbour, not to mention increased taxes and charges on vehicles, with dread.

There could also be a dangerous political spin-off from any move that revives the border with Northern Ireland.

Not for the first time, and with the 1914 War anniversary firmly in mind, it seems that interference with the status quo simply does not look like such a great idea, after all.

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