Ireland in ‘frontline’ as Brexit fear sparks sell-off

Ireland is the country most exposed to an economic fallout, if the UK were to vote to exit the EU in less than two weeks, S&P Global Ratings has said.

The economies of Ireland, along with Luxembourg, Malta and Cyprus, are in the “frontline” to face the “aftershock” of a Brexit vote, said S&P Global — the new name for Standard & Poor’s .

The warning comes as European shares suffered a sharp sell-off yesterday, partly reflecting the increased risk that the UK will vote to exit the EU in its referendum on June 23.

S&P said its new Brexit Sensitivity Index shows Ireland would be buffeted because of its strong trading connections across the Irish Sea.

“The results for Ireland imply significant reverberations to the Irish economy should the UK leave the EU, depending on the new economic relationship it can forge with its most important trading partner,” say credit analysts Frank Gill and Aarti Sakjuja at S&P.

“At the least, were the UK to vote to leave the EU on June 23, the uncertainty regarding its new trade and migratory agreements with Europe would take its toll on flow of merchandise services and human capital, along with the Republic of Ireland’s 499km border with the UK,” they say.

Nonetheless, S&P believes the Republic would in time re-orientate trade “in the unlikely event” the UK fails to strike some sort of new trading accord with the reduced EU bloc, in a post-Brexit world. S&P believes historical links forged with the financial centres in Malta and Cyprus make the island nations the second most vulnerable to a Brexit vote.

Transactions routed through Luxembourg to the City of London also exposes the Benelux country to potential fallout, says S&P in its research called, Who has the most to lose from Brexit?

The ratings firm says its index does not take account of potential political aftershocks. Many economists here have highlighted the political fallout in the North should the UK reimpose a ‘hard border’ of customs controls between Derry and Newry. 

Sterling could fall again sharply against the euro on June 24, if the UK votes to leave. A weak pound is seen as a drag on firms in the Republic exporting into Britain. Sterling fell yesterday 0.4% to $1.44. It’s down 1.9% against the US currency this year.

European shares also fell sharply. Reuters reported gold sales in London had increased in recent weeks as sterling investors sought to protect the value of their assets against the risk of a sharp fall in the value of sterling, the day after the referendum, in the event of a Leave vote passing.

“The confidence that has been built up this week seems to be ebbing away today, with investors once more heading for the reliable havens in the face of a sharp pullback in European stock markets,” said Joshua Mahony, market analyst at IG. “There is a feeling that despite recent gains, the upside benefit could be outweighed by the risk of another sell-off, especially considering the potential implications of a Brexit,” Mr Mahony said.

In Dublin, Mark O’Byrne, research director at GoldCore Ireland, said it has seen an increase in the number of accounts opened this year by UK clients who are seeking to buy gold amid increased risks of a Brexit vote and terrorist attacks in mainland Europe. Gold has risen over 14% to €1,117 an ounce since this year, he said.


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