Tuesday 23 December 2014

Why a Brexit might be good for Ireland

Peter Casey

Published 13/07/2014 | 02:30

FLAG WAVER: UKIP leader Nigel Farage holds a British flag at the European Parliament in
Strasbourg. Photo: Jean-Marc Loos/Reuter
FLAG WAVER: UKIP leader Nigel Farage holds a British flag at the European Parliament in Strasbourg. Photo: Jean-Marc Loos/Reuter
Peter Casey

THE 'Brexit' - Britain's exit from the EU - is a very real possibility that could have massive benefits for Ireland, and the economically-deprived border counties in particular.

While a majority of the Confederation of British Industry members (78pc) want to stay in the EU, the electorate is telling a different story.

In all non-business-related surveys of ordinary people, the margins favouring continued membership have been either much narrower or against.

Upt to 42pc of British adults want to leave and 18pc are unsure, according to a recent ComRes poll (May 2014) which showed a hardening of anti-Europe sentiment over the last year.

Throw into this Prime Minister David Cameron's recent "cast-iron pledge" that a referendum on EU membership would happen before the end of 2017 and we have a perfect storm brewing in the wake of the appointment of Jean-Claude Juncker as European Commission President.

Ireland followed the UK into the EU in 1973 - but has no real incentive to follow it out in 2017.

Nevertheless, one way or another, Ireland is bound to feel a British departure more strongly than any other EU member.

The UK is Ireland's largest trading partner, the two countries are ideological, linguistic and cultural allies within the EU, and they share a major - and also quite unique - land border.

This last item is likely to emerge as the thorniest, yet most interesting, issue in the event that Brexit becomes reality.

While it is true no EU member has ever left, we know that EU membership/non-membership need not be a strictly either/or proposition.

Norway, Iceland and Switzerland are not EU members, but they are members of the European Free Trade Area (EFTA).

This, which gives them the benefits of free trade without the obligation to accept EU encroachments on sovereignty, was recently defined by Hugo Dixon as "things that are best left to nation states, such as the hours people are permitted to work and how curvy cucumbers are allowed to be".

However, EFTA gives them no voice in most European Economic Area (EEA) regulation of trade policy and import tariffs.

If the UK left the EU but remained in the EEA or returned to membership (like Norway, Iceland and Switzerland) in EFTA, Ireland would likely feel little negative impact on its trade with Britain or the rest of the world.

But would the UK be willing to relinquish its voice role in crafting the economic and trade policies to which it would still be subject? Probably not.

And so any UK withdrawal is likely to be mitigated with lots of behind-the-scenes agreements, which will effectively mean there will be very little difference to the way the UK trades with the rest of Europe.

Deals would be done. For example, Germany cannot afford to lose sales of BMW, SAP, Mercedes and so on to the EU's third-largest economy.

The balance of payments between the UK and Germany is €2.89bn in Germany's favour, with Berlin exporting €46.44bn westwards each year, meaning that they would be hurt much more if mutual retaliatory taxes were introduced.

While strong cases have been made for both the negative and the positive impact of Brexit on the United Kingdom, not much has been written about the impact on Ireland and, in particular, Northern Ireland.

We have had very few conversations about the possible effects on Ireland resulting from a UK withdrawal, save for some dire warnings about the negative effect on services such as software, consulting and professional services.

The more realistic foresee a political-psychological crisis created by the necessity of instituting border controls between the Republic and the North to prevent smuggling and collect taxes.

Would Frontex, the EU border agency, have to be called in to augment a newly-created cadre of Irish border police?

Unless the border is going to be reinstated and have police/border controls between the Republic and the North reintroduced, it will be impossible to prevent smuggling and enforce the payment of taxes.

And just who would place that call to Frontex? The Taoiseach? I don't think so. The First Minister in Northern Ireland? Doubtful, as Sinn Fein now have seats in every constituency in both North and South of Ireland.

Or would an EU bureaucrat authorise a police invasion of Irish territory?

Sinn Fein, whose influence is growing in both the North and the South, would never agree to any form of restoration of a border.

But these are moot questions, since it would be political suicide for any leader to support reintroduction of a border. Interesting times could lie ahead.

In the absence of any border between the North and the Republic, Ireland - in particular the border counties - potentially become the plugholes that drain the European Union bathtub.

UK companies would have a compelling incentive to set up distribution centres in border counties in Northern Ireland, from which goods and even services would be transferred across the non-border to the Republic of Ireland, an EU member free to exercise its free trade with the rest of the European Union.

In this scenario, the benefits to the UK economy of this post-EU trade are obvious, as are those to UK-based companies and, of course, to the Irish economy.

Less obvious, but most interesting of all, are the potential benefits to the border region.

Come 2017, should the voters of the United Kingdom vote themselves out of the European Union, some of Ireland's poorest counties, my home base in Donegal included, could suddenly find themselves at the centre of a smuggling industry in European finance and trade.

What a transformation that would be. Welcome to free enterprise.

  • Peter Casey is founder and executive chairman of Claddagh Resources, a global recruitment and search business. He is also a panelist on the RTE TV show Dragons' Den
  • Follow him on Twitter: 
@TheDragonPeter

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