Brexit is not a friendly act and we have to invest big

Brian Lucey outlines strategic actions which Ireland could take to ease the blows that will almost certainly accompany Britain leaving the EU.

Brexit is not a friendly act and we have to invest big

In economic terms, 2018 is going to be a very interesting year. Three big issues will demand the attention of the Government: Brexit, the lack of infrastructure that will hamper our ability to build on prosperity, and the need to plan for a united Ireland.

Despite the best efforts of all, it seems that the UK government has major difficulties in facing reality.

Reality needs to bite and soon or the UK runs the risk of losing all credibility.

We might not want to hold our breath too much as this, a reality versus delusion debate, which will require the ending of a decades-long Tory civil war over Britain’s place in Europe. Without a shadow of a doubt Brexit remains the largest single cloud in the economic sky.

Ireland faces exposure on three fronts. SMEs, when they do export, tend to do so disproportionally to the UK. Any barriers to free trade will impact upon them very severely.

A poorer UK is one that is less attractive to all firms. And then we need to look at the longterm downward trajectory of sterling, rendering UK exports to us cheaper and enhancing domestic competition.

In all, Brexit is bad news for us. Some recent research suggests that a hard Brexit would result in around 50,000 job losses, concentrated in the food and agribusiness sector.

While disastrous for those areas, it would not be calamitous for the State. With 2 million people at work, a loss of 4% of employment is just about bearable. Even a soft Brexit would inflict losses of the order of 10,000 jobs or more. Brexit is not a friendly act.

A second issue that needs to be forefront in 2018 is the lamentably slow pace of infrastructural development. The glacial pace of home building has been well analysed by now.

But we are equally slow when it comes to other infrastructure.

How long would it take to build a tram system for Limerick, Galway, and Cork?

How long would it take to build additional schools, to ensure that broadband is available nationwide?

What about expanding ports to enhance direct roll on-roll off freight transport to the continent?

We know these problems exist, and that money is not the issue. The consequence of this paucity of infrastructure is that we are ill-placed to benefit from the companies that will move from the UK when Brexit occurs. A solid network of motorways and, yes, railways, as well as a dense net of broadband, homes and schools, are required.

As long as there is a deficit in infrastructure we cannot compete as we should for foreign investments.

How long would it take, for example, to get Garda clearance for say 2,000 teachers of modern continental languages, if we decided as I believe we should to introduce spoken German and French into primary schools?

A root and branch review of how and why we take so long to do anything serious in building infrastructure would be a very good idea. But, no doubt, any such report would end up on the shelves.

In any case, the Government remains committed to a policy of running down the national debt, and significant investment in the form of additional capital or current spending will be constrained, lifted only when the prospect of an election becomes real.

Finally, some open planning on the economic implications of a united Ireland might be timely.

Demographic and economic forces are slowly but seemingly inexorably moving the scales towards a potential unification in the next few decades. But what would that mean? For instance, despite its shortcomings, the NHS generally offers better care for less than does the HSE.

Northern Ireland runs a massive deficit and relies on subsidies from the UK. It is not feasible that the UK would continue to fund the North after unity.

So who would?

We have convinced ourselves we have a uniquely highly taxed State, so it is unlikely any Dublin Government, even faced with unity, would impose the taxes required to bridge the gap. Would the EU? If so, for how long?

We need to think about the economic, as well as the political and constitutional aspects, when looking at a united Ireland.

For the North to converge to the levels of the State would require that it grow faster than the state for decades. How would that be achieved?

These are big questions. We are in a fairly benign economic environment, even facing into Brexit.

We have a very strong degree of cross-party support for the broad thrust of policies. The Government has played a fairly weak hand very well indeed in Brexit, and should trust the competence of the civil and public service to think and advise on these issues.

Brian Lucey is professor of finance at the School of Business, Trinity College Dublin.

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