Long delay to Brexit now seems to be the most likely outcome

Another mad week on the Brexit front that is not quite over yet.

Long delay to Brexit now seems to be the most likely outcome

Another mad week on the Brexit front that is not quite over yet. The decision to hold eight indicative votes in the UK Parliament effectively took control of the Brexit agenda away from the British Government, but in the event all eight votes were lost.

British Prime Minister Theresa May was initially adamant that her government would not be bound by those indicative votes. This elicited a response from the Tory legend Michael Heseltine that it would be dangerous for Ms May to ignore parliament.

Meanwhile, another Tory legend - albeit for very different reasons - Jacob Rees-Mogg - suggested that Ms May’s withdrawal agreement would be better than not leaving the EU at all. In other words, he now supports a deal that he has ridiculed for months.

The Prime Minister has promised to resign if her withdrawal deal is accepted whenever it goes back to Parliament. Hard to see it accepted, so unfortunately she may survive for a while longer.

Out of the eight votes rejected, it is interesting that most support appears to be leaning towards a vote of the people on whatever is eventually agreed or a Customs Union option. It is dangerous to take any view at the moment, but a long extension to Article 50 is possibly the most likely outcome at the moment.

Meanwhile, here in Ireland economic think-tank, the Economic and Social Research Institute - ESRI - made its latest attempt to model the impact of possible Brexit outcomes on the Irish economy. It does this by looking at where the economy could be in ten years’ time if Brexit did not happen, and then seeks to model how this outcome might be affected by different Brexit outcomes.

The analysis suggests that in a decade, GDP would be 2.6% lower in the event of a deal compared to if Brexit did not happen at all; 4.8% lower in the event of no-deal; and 5% lower in the event of a disorderly no-deal scenario.

In this scenario planning, the ESRI models many different effects including the impact of tariff and non-tariff measures on Irish trade; the potentially positive impact of foreign direct investment diversion to Ireland; and the impact of lower UK-EU trade on Ireland’s main trading partners and the negative impact this would have on the demand for Irish exports.

The negative impact would, not surprisingly, be felt by the labour market, the household sector, and the public finances. In a stark manner, its conclusion is that the negative impact of a deal scenario is roughly half that of a no-deal scenario.

Interpreting the analysis as the end of the road for the Irish economy would appear to be wrong.

The Irish economy will likely be bigger in a decade than it is today regardless of the Brexit outcome. The Irish population is likely to be a lot bigger and a lot older in ten years’ time than it is today. Hence, it is important that the economy would be significantly bigger.

The public finances will need to be managed very carefully and prudently in the face of the immense Brexit challenge. Ireland must also do its upmost to exploit the fact that our neighbouring competitor is exerting untold damage on itself at the moment.

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Wednesday, June 22, 2022

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