Friday 21 October 2016

Brendan Keenan on Project Fear: They were right to be afraid, and so should we be

Brendan Kennan

Published 02/07/2016 | 02:30

Bryony Jackson was one of the thousands of ‘Remain’ supporters that gathered outside the Scottish Parliament, in Edinburgh, to show their support for the EU in the wake of Brexit. Photo: Jane Barlow/PA Wire
Bryony Jackson was one of the thousands of ‘Remain’ supporters that gathered outside the Scottish Parliament, in Edinburgh, to show their support for the EU in the wake of Brexit. Photo: Jane Barlow/PA Wire

Project Fear - the Brexiteers' description of the Remain side's campaign - was perhaps their most successful line in the bitter UK referendum debate.

  • Go To

A basic rule of politics is that it is a bad idea to try to frighten the voters. That seems to have held true this time too, but what if the voters really should be afraid, perhaps very afraid?

Many already know that they are more fearful than they were before the vote - whichever way they voted, or even if they had no vote - like the Irish, the rest of the EU and a good chunk of the world besides.

There is plenty to cause alarm. The cutting of Britain's debt rating from the top A AA level may not mean much to people outside the world of finance. Nevertheless, the idea that the UK, with its historical place in the world and its own currency, would not merit the top rating was unthinkable, even in the depths of the euro crisis.

Now it is part of a consensus among forecasters that the UK economy will stagnate next year. Davy stockbrokers in Dublin are among the more pessimistic, seeing growth fall to just over 1pc this year and recession - defined as six months of falling output - around the turn of the year.

Such a result would see unemployment rise from just over 5pc to 6.5pc. Britain's low unemployment rate represents its biggest success, relative to the rest of the EU. But thereby hangs a tale.

The success is partly due to government income support for low-paid workers, which in turn made the UK a magnet for migrants, whose pay would be topped up by cash payments in lieu of tax credits. The influx was key to the referendum result. Whatever people may have said or thought during the campaign, politics is a complicated business.

On the positive side, markets have stabilised, as they tend to do. Much of the panic was because traders had bet on a 'Remain' win and had to cut their losses. Sterling's fall was indeed dramatic but, whatever impression you may have been given, at 82p to the euro, it is not particularly low.

It is just below the level at which the Irish pound joined the euro in 1999. Slippage to 90p or more to the euro would represent a bigger threat to Irish business than border checks or even tariffs. This danger has loomed over the Irish economy for all those 17 years, without ever becoming a reality.

Whether it does become reality depends on the outcome of all those unknown future negotiations. The signs are not great. The EU's response has been fragmented, with the usual pursuit of national interests. There are plenty of countries which would prefer to scavenge for British financial and manufacturing jobs rather than look to the greater European good.

It is hard to see any other reason for the demand that Britain start the inexorable process of withdrawal at once. Luckily, we have the Merkel method - described as doing as little as possible until everyone has time to think. Or perhaps it is the female method, with Scotland's Nicola Sturgeon, and even Northern Ireland's Arlene Foster, also showing admirable caution.

Yet the scavengers may still have their feast. The City of London has not settled. Companies are already moving staff, and many more are making plans, on the assumption that no exit model can possibly allow services which at present are confined to EU countries to be done outside the EU.

There is talk of a deal which would allow the free movement of goods to continue, even though it would mean Britain applying EU regulation and probably paying into the EU coffers.

Free movement of people is more difficult. The British position may be to distinguish 'labour' from travellers.

With unanimity required for any deal, it is hard to see the poorer EU countries agreeing to this, but rights for their citizens already in the UK might be a bargaining counter.

Such a deal might even keep Scotland in the UK. It is now a totally different question from the one in the last referendum. A complete Brexit would see an independent Scotland sign up to join the euro and a 'hard' border between it and England, of the kind so exercising the Irish.

They may not have our particular complications, but it would not be any easy package to sell in a new independence poll.

Free movement of financial services looks the most unlikely of all. Yet this should be the greatest concern for Ireland, North and South, despite the business the Republic would surely pick up from any mass exodus from London.

The reason is one you will not hear from self-satisfied UK politicians or commentators. Britain's deficit with the rest of the world is the largest in the EU - bigger now even than that of Greece. This is despite the €150bn value added to the UK economy each year by financial services.

If any large chunk of this should disappear and the deficit swell, history says there can be only one outcome - a run on sterling and an austerity-driven recession to control the budget deficit, which is about the same as that of Greece.

The effect on the Irish economy of a really cheap sterling and falling demand in Britain does not bear thinking about.

Project Fear is still up and running.

The only safe, perhaps sane option, would be for the British to change their minds. They do not even need a second referendum. But was Boris Johnson done for, just because he might have been thinking along those lines?

Irish Independent

Read More