By the time this article appears we will know the result of the Brexit referendum. Over recent weeks it has become increasingly difficult to call as the polls have moved significantly.
The campaign was nasty and characterised by an incredible level of misinformation and xenophobia, on the ‘leave’ side in particular.
Issues around the impact of migration took centre stage on the ‘leave’ side and it basically treated economic issues in a manner that suggested a very high level of economic illiteracy.
The ‘leave’ side clearly operated on the basis that the facts should never be left get in the way of a good story.
How anybody could possibly argue that the UK economy would benefit in the near-term at any rate is beyond me.
In the longer-term, the economy would obviously have to adjust and build new markets and focus on ensuring that a very pro-business environment might just offset the more limited trade access to the EU market.
How much more limited would remain to be seen and would be determined by the protracted negotiations that would follow a vote to leave the EU.
If the UK were to leave, then UK policy makers would have to adopt a very novel and aggressive approach to economic development. Easier said than done, but possible.
Writing about the result of a referendum before the result is known, but which will be known by the time it goes to print, is obviously a very dangerous/stupid thing to do and could leave one with lots of egg on one’s face.
Nevertheless, I assume the ‘remain’ side will prevail because since the savage murder of Jo Cox I suspect that many sensible thinking people would have associated the level of xenophobia that dominated the campaign with that horrendous event and would have moved quickly to disassociate themselves from any possible link.
If the UK does vote to remain, it is far from certain that the issue will have been put to bed for once and for all.
Depending on the margin of defeat for the ‘leave’ side, it is unlikely that the referendum will actually resolve the European question to the satisfaction of anybody.
The Brexit campaign has clearly demonstrated that there is a large cohort of the UK population that is deeply sceptical of anything to do with the EU.
That will not disappear in the event of a narrow vote to remain in the EU.
For David Cameron, a victory would obviously be good from a personal political perspective.
However, he will still have to deal with the large number in his party who are opposed to the EU.
One way of approaching this problem would be to use a pro-EU vote to leverage greater UK influence over the manner in which the EU goes about its business.
Anybody with half a brain would recognise that the EU is a deeply flawed structure that needs fundamental reform if it is to deliver what it is intended to.
One would hope that David Cameron would use that leverage and much more importantly that the EU elites might wake up to the reality that fundamental changes and reforms are needed if the EU is to avoid going the way of the dodo.
If I am wrong and if Brexit is a reality by the time this appears, then all bets are off and the UK and the EU will face a fundamental crisis of confidence unlike anything it has seen in decades.
Ireland, of course, will also have its problems in that eventuality.
This week the Government published the summer economic statement which amongst other things laid out the projected economic environment over the period out to 2021, and more importantly, it sets out the projected fiscal parameters over that period.
GDP growth is forecast to average 3.7% per annum between 2016 and 2021.
This looks realistic based on what we know at the moment. That old chestnut, the fiscal space, has also reappeared.
The fiscal space is the amount of money the Government will have at its disposal after providing for precommitted policies such as demographic developments, the reversal of FEMPI (Financial Emergency Measures in the Public Interest) in the Lansdowne Road Agreement, and capital expenditure plans.
This, of course, is all predicated on satisfying our EU budgetary commitments. The good news is that it is estimated at €11.3bn between 2017 and 2021, with €1bn available in 2017.
From 2019 onwards, €1bn per year of this fiscal space will be put into a ‘rainy day’ fund to deal with unforeseen shocks. If the €11.3bn does materialise, 51% will be allocated to expenditure increases; 23% to tax reductions; and 27% to the ‘rainy day’ fund.
Obviously, the scope for action will be determined by the macro-economic performance and as this veers off track, the fiscal space will adjust accordingly. Obviously, Brexit could have a very significant and very negative impact on the space.
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