A British exit from the EU following the upcoming general election could wipe almost €4bn off the value of Irish exports.
The exit would have significant ramifications for Ireland given its close ties to Britain particularly for exports.
Assuming the UK would negotiate a bilateral trade agreement similar to those already in place with other countries if it were to leave the union, trade between the UK and its EU trading partners would fall almost 22%, according to ESRI associate research professor Edgar Morgenroth.
While this is held up as the “worst case scenario”, the economic analyst acknowledges that individual countries may be affected to a greater or lesser degree than the 22% figure.
That opens the possibility of a greater reduction in Irish exports given our ties with the British economy. Dr Morgenroth’s estimates are contained in a new book from the Institute of International and European Affairs published today, Britain and Europe: The Endgame - An Irish Perspective which looks at the potential impact of a British exit across a range of topics.
Using 2012 export figures, a 21.6% average impact on exports across the EU would equate to a €3.8bn reduction.
The impact on the UK would be larger costing (€46.16m) due to cumulative effect across 26 countries. The analysis also points to a €3.7bn drop-off in service exports.
“In the absence of a similar detailed analysis of the impact of trade agreements, the results of such calculations should be treated with caution. Ireland would suffer a reduction in services trade of 4.1% (€3.7bn) while the UK would see services trade reduced 8.6% (£9bn),” Mr Morgenroth writes.
Ireland’s energy security could also be compromised by its neighbour’s exit given the links between the two countries particularly in terms of the crucial gas interconnector with Scotland which plays a central role in electricity generation on this side of the Irish sea.
An exit could offer a significant opportunity to attract increased foreign direct investment, however.
Working off OECD data, Dr Morgenroth suggests that Ireland could attract up to €6bn of additional foreign direct investment — raising the total stock by 2%.
With Irish firms having invested in the UK too though, Britain leaving the EU would impact upon these investments and likely reduce their value. Ultimately, the nature of agreements between the EU and UK will determine the final impact of any exit.
Retaining the status quo in market access would minimise the economic impact but is unlikely given political considerations, Dr Morgenroth concludes.
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