Tuesday 5 May 2015

Threat by British to quit EU could prove beneficial for Ireland

A satisfactory deal for Britain would help us, but an EU exit by them would be disastrous

Published 20/07/2014 | 02:30

Britain's Prime Minister David Cameron
Britain's Prime Minister David Cameron

The possibility of 'Brexit' - British exit from the EU - notched up a little during the week with the appointment of the rather Eurosceptic Philip Hammond as foreign secretary. Mr Hammond is on the record to the effect that he supports UK exit under the current terms of membership.

The fundamental in or out calculus remains unaltered, however: unless the Conservatives win the election, fixed for May 7, 2015, there will probably be no EU referendum, since the Labour Party, slightly ahead in the polls, has made no commitment to having one. They could change their minds, of course, but the pundits reckon they will not. According to the bookmakers, the most likely outcome is that no party will have an overall majority and both Labour and the Tories are (short) odds against.

Whether a referendum is held - and what way it might go - are matters of great importance for Ireland, but beyond any influence from this country. The British will either stay through denying a majority to the pro-referendum forces next year; vote to stay at a referendum; or negotiate departure after an 'out' decision in 2017. David Cameron is likely to recommend staying in - if improved terms of UK membership can be negotiated - but there is no clarity at this stage as to what modifications of membership terms will be sought. What is sought may not be granted.

Any change in terms involving a new treaty or major treaty revisions will be contentious and would require a lengthy European convention and unanimous consent from all member countries. Unless some serious concessions to UK demands are forthcoming, there is every chance that the decision in 2017 could be for exit.

The process of negotiating these altered terms will not begin in earnest until after next May's election, and, if the Tories lose it may not happen at all. But there will be pressure on the Conservative Party to flesh out a negotiating position before the election.

Changes to some parts of the EU rulebook might not be unwelcome in this country; just about every EU member has concerns about a particular aspect of current arrangements. The trouble is that Ireland's principal concerns are quite different from those of the UK and are not likely to feature on the UK's shopping list, whenever it appears.

The main UK issues are likely to include financial contributions, waste in the EU budget, reform of the common agricultural (including fisheries) policy, labour mobility and immigration, including transferability of social welfare entitlements, as well as what is seen as excessive intrusion by EU regulatory and judicial bodies. Most of these are not live issues in Ireland, whose immediate priority should be a reconstruction of the ill-designed common currency into a proper monetary union.

There are also legitimate grievances arising from the bail-in of Irish taxpayers to rescue foreign lenders to bust Irish banks. The British, to their undisguised glee, stayed out of the eurozone, so do not share any of this agenda. They have had no voice in the process of eurozone redesign and cannot realistically seek any.

There is thus little apparent upside to British exit from an Irish perspective. If the referendum in 2017 sees Britain depart, that would be a serious blow to the broader European project but a particularly troublesome development for Ireland, which has never been in membership without the UK and did not seek to join the then Common Market until the UK did so.

A British exit could destabilise the European Union, in the sense that some of the existing members - particularly those outside the eurozone - are not 100pc happy with the way things are going and have seen increased support for Eurosceptic political parties. Concessions designed to keep Britain on board could encourage quite different demands from others. Should those concessions be denied, a UK exit might not be the last. Britain is the only EU member where the issue of EU exit is firmly on the current political agenda, but should that eventuality actually materialise, Eurosceptic forces in other countries will acquire extra momentum. It is pretty difficult for a country to leave the eurozone. Leaving the EU is more straightforward and a procedure is laid out in the Lisbon Treaty.

It is difficult to make an economic case for an Irish exit from the EU itself. But it may be possible that the prospect of a British exit can somehow be leveraged to enhance Ireland's pursuit of its own agenda with Europe. The difficulty is that any post-2017 negotiations with the UK - should there be a vote for exit - will not revolve around the issues that currently most concern Ireland. There are two critical changes that would make a difference. The first is the excess costs of bank rescue imposed on Ireland by the ECB, to the benefit ultimately of foreign unsecured creditors of bust banks. The eurozone rescue fund will not, on current indications, assist with retrospective re-capitalisation. If the fund were to be mobilised to assist future bank busts elsewhere in the eurozone - as is contemplated - it is even possible that Ireland would be expected to contribute numerous billions to the fund, having been denied access itself.

There is every likelihood of further bank busts at some stage. For an Irish government to place further debt on the state balance sheet for fresh bank rescues in continental Europe would be an explosive political issue, as indeed it would be for any other government faced with such a prospect.

It will make people think about joining the British in heading for the exit. The Government should not be shy about drawing this political reality to the attention of European partners.

The second desirable change from an Irish perspective is the completion of a proper banking union, resisted thus far by Germany, and the conduct of a coherent overall macroeconomic policy for the eurozone. While these issues will play out independently of the 'Brexit' threat, the opportunity needs to be taken soon to draw attention to the particular concerns that arise in Ireland. A British exit would create special problems here, more serious than for any other member state.

For example, Ireland and the United Kingdom have always had free movement across the border and through sea and airports without passport checks and no restrictions on labour mobility. The land frontier would become the external border of the EU should the British leave. Without special arrangements, there could be a costly and divisive re-partition of Ireland. It is also the case that various reciprocal deals pre-dating Common Market entry in 1973 could be threatened, as could the position of offshore financial services here. Once the 
UK's negotiations with the European Commission get going, should there be a vote for exit in 2017, Ireland should insist on a special status in that process.

Since the best outcome from an Irish standpoint would be for Britain to secure a satisfactory deal, enhancing the prospects for a 2017 vote to remain in the EU, the Irish authorities should support any reasonable British demand. The UK has been a consistent opponent of waste in the EU budget, including the expensive bi-location of the European Parliament and the proliferation of useless quangos.

There is no important Irish interest at stake in supporting the British efforts to eliminate waste in these areas. This support should extend to British efforts that would involve treaty change, since fundamental reform of the common currency project - a vital Irish interest - looks as if it will continue to stall until treaty change is contemplated.

Colm McCarthy

Sunday Independent

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