The upcoming UK in-out referendum on Europe is the biggest event to affect Irish foreign policy since Ireland joined the European Economic Community with Britain in 1973.
On balance, the impact of Brexit is negative for Ireland.
Trade is expected to suffer the biggest adverse reaction.
Ireland is a small open export-led economy heavily reliant on the health of its customer countries.
The UK is the destination for 20% of all Irish services exports and 14% of all Irish goods exports.
The cyclical nature of services exports would be sensitive to any drop in UK economic growth, while narrowly applied trade barriers on products/sectors where Irish goods exports are concentrated could have significant implications.
Imports from the UK to Ireland are more evenly distributed across a number of sectors.
However, raw materials or imported intermediate goods are particularly important in sectors which have a significant presence of multinational firms.
Again, the food sector features prominently but machinery and transport equipment, fuels, chemicals and miscellaneous manufactured articles are of similar importance.
Despite our strong historical ties, it’s unlikely that Ireland will be in a position to argue a “special case” and agree a bilateral trade agreement with the UK.
There is no facility for individual EU states to negotiate bilateral trade agreements; all trade deals must be conducted at a wider EU basis.
Ireland is the only member of the EU to have a land border with Britain. Both countries are part of the EU Customs Union, which means that there are no customs controls on the border.
Without this, goods being exported across the border could be subject to various forms of customs controls and their liability to duty determined according to complex Rules of Origin.
The eventual possibility of returning border posts at every crossing to the UK in the six counties cannot be discounted.
Since the 1998 Good Friday Agreement, the peace process has strengthened, but a drop in cross-border economic activity could undermine the confidence and refuel conflict.
Over time there is the possibility that Ireland may benefit from increased Foreign Direct Investment (FDI).
However, Ireland has traditionally attracted companies in both the pharmaceutical and IT sectors and has only had limited success in financial services compared to the UK.
Should financial services companies be enticed to relocate out of the City of London, Paris and Frankfurt would be the more likely beneficiaries in view of the shortage of office space in Dublin
A Brexit could require Dublin to rethink how it positions itself within the EU.
Dublin and London may be on opposing sides of the European debate on agricultural subsidies, but they find common cause on free trade, taxation, the internal market, financial services and justice and home affairs.
The UK’s absence from the EU’s qualified majority voting arrangements would hand a French-led protectionist bloc large sway over future EU decision-making as it would be able to command a blocking minority (35% of voting weight), while the UK’s natural allies such as Germany, the Netherlands, Sweden and Ireland would not be able to.
Despite the avalanche of media coverage and market commentary, investors remain relatively relaxed regarding Brexit risk.
Given the quantum of “the unknown” were Britain to leave, there has been an absence of any market panic to the referendum.
Investor consensus is that Ireland would suffer more than most European countries in any Brexit scenario.
Still, Brexit would be a shock to the European project as a whole, peripheral market’s such as Italy and Spain would suffer an adverse response in line with Ireland despite the variations in trade ties.
Indeed, it is possible that the periphery could underperform as investors fear the rise of anti-EU parties.
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