Having come through the worst economic crisis in the history of the state Ireland may be about to face another economic and political challenge of arguable major proportions. The upcoming Brexit vote in the UK represents a real danger to our future economic wellbeing. As Klaus Regling, head of the European Financial Stability Fund said recently in Brussels – Brexit would impact on Ireland more than any other EU country. This week the IMF took to the stage and warned of severe economic damage for Europe and indeed for Britain.
In politics it’s always better to plan for the worst outcome. Anything that can go wrong, generally speaking does go wrong. The recent general election campaign by my own party being a case in point.
Just ten weeks from today Britain may be on the way out of the European Union. Recent opinion polls are indicating that the Leave and Remain sides are neck and neck. The polls also indicate that the Leave side is gaining momentum.
In a marvelous interview with Nigel Farage in last weekend’s edition of the Financial Times, Henry Mance described his lunch with the UKIP leader as both informative and liquid. They had 4 pints, a bottle of Chablis and two large ports, all before 4pm. Clearly Mr. Farage and the LEAVE campaign are getting confident – they seem to be celebrating already.
As we know from our own experience, referendums are often used as a mechanism to express general dissatisfaction with a government. What politicians, on both sides of the Irish Sea constantly underestimate is the impact of disruptive politics. If ever there was an issue that encourages this new phenomenon it must surely be Brexit.
I don’t want to comment in detail on British politics but the following facts are evident.
The present Conservative government has struggled with difficult issues since the beginning of the year and the authority of the British PM David Cameron has been somewhat weakened by recent events.
It is also a fact that the Labour Party leader Jeremy Corbyn, while he publicly supports the Remain campaign, comes from a tradition within the Labour Party which is less than enthusiastic about the EU.
I want to bring to your attention a certain irony in all of this. In this year, the centenary of the 1916 Rising – the kind of thinking which motivated the leaders in 1916 is now motivating many British and particularly English people 100 years later. Ideas such as; breaking or separating from the connection with Europe, restoring national sovereignty, ourselves alone.
A further irony is that Sinn Fein which campaigned against every EU referendum in the Republic is now campaigning in Northern Ireland with a British Conservative government on the Remain side of the debate. Sinn Fein is no longer Euro Sceptic but rather Euro Critical, or so we are told.
And of course Britain’s island status, its history of Empire and Commonwealth and of course two World Wars have meant that Britain’s relationship with the EU has always been a little tetchy and uneasy.
I’ve just finished reading Boris Johnson’s excellent book on Churchill, where even Johnson, now a confirmed “outer”, finds it difficult to ignore Churchill’s early support for the idea of a United States of Europe. Johnson, who himself has a lot riding on this result, brilliantly sidesteps criticising his hero but rather blames Atlee’s government in refusing to shape post war Europe by joining when they Britain had the chance. “Churchill would have stopped the early demand for an EU institutional empire,” Johnson tells us. I wonder indeed?
I think it was Ambassador Chilcott who referred earlier this year to the difference in understanding between Britain and the other countries on the nature of the EU project.
For Britain the EU is more about the transactional; it is about trade and opening up markets. For many other countries in Europe the EU is more about being transformational; for those countries the EU is primarily a political project, largely shaped by historical reasons.
The eastern accession states needed the EU to complete the move from Soviet domination towards democracy. Spain, Italy Portugal and Greece needed the EU to bookend the period of military dictatorship. Ireland needed the EU to come out from under the skirt of our nearest big neighbour. For Britain, whose institutions were totally intact after the war, not disgraced by the rise of fascism as other large states in Europe had been, the question was and largely remains, why do they need this thing called Europe.
Ireland and Britain
Ireland has three key international relationships – with Britain, the EU and the US. Geography and history dictates that Ireland’s relationship with Britain will always be of primary importance.
Membership of the EU has certainly been transformational for Ireland. For more than 40 years Ireland’s membership of the EU has been critical to our economic and social development.
We joined with the U.K, because we couldn’t have joined without them. The question must now be asked honestly; were they to leave now, could we stay in the EU without them? This is not some academic question. It will have to be faced in a post-Brexit environment.
I’m satisfied that we could and should remain in the EU without Britain. I’m satisfied that’s it’s in Ireland’s national interest to remain. But most definitely we would need a new agreement with the EU, post-Brexit. We would also need a new agreement with the U.K.
The biggest loss for Ireland from Brexit would not just be loss of our biggest trading partner, but the loss of a big country that we rely on for support in helping to fight our corner. Britain has an economy like ours. We are both exporting economies. We need Britain’s view of the economy to be foremost in designing a competitive and forward looking EU.
Preparing for Brexit
Since the election the Irish political system has engaged in an extended period of government formation. There is now an urgent need to put in place a stable government to prepare for the real prospect of Britain leaving the EU.
Failure to prepare adequately for such an eventuality would be serious dereliction of duty by all Irish politicians. There is a real danger that the present protracted negotiations on the formation of a government are distracting attention from the bigger danger ahead.
A British decision to leave the EU will be a profoundly disruptive economic and political event – for the EU, for Britain and for Ireland. We urgently need to prepare for that outcome. As Roy Keane famously said – “fail to prepare, prepare to fail”.
Ireland’s decision to join the Eurozone without Britain has left us vulnerable to negative currency fluctuations involving our single most important trading partner. The immediate danger to Ireland is the euro/sterling exchange rate. The very favourable exchange rate in recent years has been an important element in the Ireland’s economic recovery.
At the beginning of November last year the euro was trading at 70p sterling; this week it is trading close to 80p. If Britain decides to leave the EU currency traders are predicting parity between the sterling and euro by the end of this year. Some are even predicting sterling to fall below parity with the euro.
Should this happen there would be extremely negative consequences for Irish exports to Britain. The competitiveness of the important tourist sector will also be hit badly by a big fall in the value of sterling; the British segment accounts for 40% of the Irish tourist market.
After more than 40 years a member, divorce proceedings between Britain and the EU will be protracted, complex and very messy. We must not allow Ireland to be a victim of the separation negotiations that would follow. In effect Ireland will require a new agreement with both the EU and Britain in key areas, so as to ensure that we are not disadvantaged. That will be very difficult to envisage, but we badly need to think about what that deal might be and what red line issues we require.
At this stage I can think of at least 6 red line issues:
- Given the level of Irish exports to Britain in goods and services in 2015 terms is over €35billion how could we allow Europe to impose new restrictions on our trade where Britain is no longer governed by such restriction. Would we have an opt-out on EU legislation which could create new barriers to our biggest market?
- On financial services – currently worth to Ireland about 8% of GDP- how could we accept a situation where the City of London was given a free pass on EU legislation to the disadvantage of financial services in Dublin?
- On border controls, even though we are outside of the Schengen Agreement and have a common area of travel with the U.K., the idea as some have suggested that passport controls along the border simply cannot be allowed to happen. However there must be the closest possible co-operation between British and Irish security services to assuage Britain’s concerns about illegal migrants entering Britain through Ireland post Brexit?
- On energy – we have an all-island electricity market with inter connectors north/south and east/west: how would that emerging energy market be structured with the prospect of additional EU tariffs?
- Would the UK be subject to the EU greenhouse gas emission targets? If we are, with the knock-on effect it has for Irish agriculture and food production, how could we withstand additional cost to our government or industry?
- If Britain leaves the EU, will the EU be obliged to continue funding the Peace Funding package for Northern Ireland?
I raise these issues not to provoke fear but simply to start a genuine debate about what we need from all of this. We are told that contingency plans are in place. Frankly I’m not convinced that any serious contingency planning is underway. Nor do I believe that we have a plan for the potential negotiation. We need a strategy post-Brexit and the sooner that happens the better.
The truth is that the risks associated with a protracted Brexit negotiation are immense for Ireland. There are also opportunities, of that I am sure, but the last thing that post crises Ireland needs right now is more doubt and uncertainly.
I hope I’m wrong about Brexit. I hope that none of this comes to pass. But we do need to think long and hard about what potentially lies ahead and how we might deal with it. We have as they say – considerable skin in the game.
And while I believe the great majority of Irish people want Britain to remain in the EU, we cannot determine the outcome. That’s why a serious assessment of what we might need post Brexit should now take place. In my view it’s the first priority for whatever new government is formed.
The decision on June 23rd is of course one for the British people. On June 23rd Britain will have a date with destiny. A decision by Britain to leave the EU will send shock waves all across Europe and around the world. The fallout for Ireland will be severe. We may hope for the best but we need to prepare for the worst.