Saturday 10 December 2016

Ireland would gain a little but suffer most from Brexit - Moody's

Published 22/03/2016 | 02:30

Pro-Brexit minister Iain Duncan Smith, who has stepped down from Prime Minister David Cameron’s Conservative government, leaving the stage at a past Conservative Party Conference. Photo: PA
Pro-Brexit minister Iain Duncan Smith, who has stepped down from Prime Minister David Cameron’s Conservative government, leaving the stage at a past Conservative Party Conference. Photo: PA

A vote for a British withdrawal from the European Union would hit confidence and growth across the EU, with the fallout felt by Ireland in particular, Moody's Investor Service has warned.

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The New York-headquartered agency said some sectors could relocate to Ireland or other countries from the UK, but it said any gains to those countries would be small and gradual.

Sterling was hit yesterday on concerns that divisions within the Conservative Party may be deepening in the wake of the resignation of UK Work and Pensions Secretary Iain Duncan Smith, who is backing the leave campaign, amid a row over last week's budget. One euro is worth around 78 pence, up from 69 pence in July of last year.

In a report examining the impact of a so-called Brexit, Moody's said that if UK voters opt to pull out of the European Union on June 23, the wider impact would be felt by Ireland in particular.

"The general uncertainty engendered by a Brexit vote would likely hit confidence across the EU, which could weigh on economic growth," Moody's said. "Any disruption would likely be felt by Ireland in particular, which has strong economic and financial ties to the UK, but also the Netherlands, Germany and Belgium.

"Set against that, certain activities could potentially start to relocate from the UK to Ireland or other EU countries, such as security clearing and dealing activities. However, we would expect any such gains to be small and gradual."

Moody's said that in the short-term, following a potential vote on June 23 to leave, the initial reaction would be felt on financial markets. But it pointed out that no change would take place immediately as there would be a two-year period of negotiation.

"This gradual process of negotiation implies that uncertainty about any new trading arrangements would likely persist for at least two years," Moody's said.

"Indeed, the recent decline in sterling is an indication that markets are already factoring in some uncertainty prior to the vote itself. However, following a vote to leave, uncertainty would increase significantly, weighing on firms' investment, spending and hiring decisions, which would depress GDP growth."

Moody's said the flow of FDI into the UK would also be hit.

The agency said a British exit would be a "credit negative" for the EU as it could heighten the risk of further exits from the European Union, as well as potentially lowering commitment to supporting budgetary outlays or even a commitment to the EU itself over time.

"At the same time, we do not envisage a significant immediate credit impact on other individual countries, such as Ireland," Moody's said.

Meanwhile, a separate study said banks in London would be hit hard in the event of a Brexit.

"Banks and investment firms are likely to be significantly and adversely affected by new restrictions on cross-border business," the study by law firm Clifford Chance said.

Many banks, including international ones such as JPMorgan, Morgan Stanley and Goldman Sachs, have their European bases in London, the EU's biggest financial centre, and would lose their "passport" under EU law to offer services across the bloc."This 'passport' is key to the UK's appeal for many non-EU financial institutions," the study said.

United Ireland would be worth billions to island - study

Unification between Northern Ireland and the Republic could give an all-island economic boost of €35.6bn, a new report has found.

The study, due to be launched in Dublin today, was carried out by political science and economics researchers, who conducted similar examinations of German and Korean unification models.

It found that there would be long-term improvement in the Northern Irish economy as a result of the removal of currency, trade and tax barriers. The Republic would benefit from barrier-free access to the Northern Irish market.

Irish Independent

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