Sunday 25 September 2016

Trump plus Brexit, and a domineering Germany

The world was about as good as it gets for Ireland in 2000. It didn't last and things could get much worse, says Dan O'Brien

Published 20/03/2016 | 02:30

RAISING CONCERNS: German Chancellor Angela Merkel, as head of the most powerful country in Europe, recently bypassed the EU institutions and other member states when dealing with Turkey on the migration crisis. Photo: AP Photo/Michael Sohn
RAISING CONCERNS: German Chancellor Angela Merkel, as head of the most powerful country in Europe, recently bypassed the EU institutions and other member states when dealing with Turkey on the migration crisis. Photo: AP Photo/Michael Sohn

Ireland's profile around the world rises at this time of year. It is a good moment to reflect on Ireland's place in the world.

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How has our position changed vis a vis our most important partners, how is it likely to change in the future, and what does this all mean for the prosperity and security of Irish people?

The bad news is that, from a sweet spot 15 years ago when all the stars aligned, the world as seen from the western edge of Europe is a considerably bleaker place today than it was at the turn of the century.

And it could get a lot worse. Within a few months our single most important relationship may be severely weakened if the British people vote to leave the EU. In November, the relationship with the US, including economically, could be imperilled if the American people elect Donald Trump as president.

Neither the EU nor the Eurozone are functioning well, and the prospects of Europe moving in a way that is beneficial to Ireland appear slim.

Compare all this to the halcyon days of 1999. Then Tony Blair was in Number 10. He was not only the most pro-Irish prime minister ever to occupy Downing St, he was also the most pro-EU (with the possible exception of Ted Heath). Ireland and Britain had left behind much of their historical baggage and were increasingly closely allied, with each other and in the context of the EU.

There was even a good chance, before Blair lost his authority over Iraq, that Britain would adopt our currency, making the euro much more beneficial for Ireland.

Now, instead of closer integration there is a real possibility of disintegration. Ireland is facing within weeks the strategic nightmare of being torn between Europe and a UK that could be about to set itself adrift in the North Atlantic.

If June's Brexit referendum sees Ireland's closest and most important partner depart the continent's most important political and economic structure, there will be a very long period of uncertainty. It can be said with great certainty that our prosperity will be negatively affected. The only real question is by how much.

Despite this, there is some degree of complacency on the economic consequences. This was brought home to me a few weeks ago when giving a talk to business people in London who trade a lot across the Irish Sea. Despite their direct interest in the matter, some talked of a "special deal" being done between Ireland and Britain if the latter leaves the EU.

It needs to be said plainly and clearly that there will be no special deal. There will be no special deal because there cannot be a special deal. Members of the EU make trade deals with non-EU countries collectively. They give up the power to do bilateral deals upon joining. Trade and investment treaties are what is known in the Brussels jargon as an "exclusive EU competence". Because of this Ireland has not done such a deal with another country in more than four decades.

All that means is that in the event of a Brexit decision, the European Commission in Brussels would negotiate with Britain on behalf of Ireland and the other 26 members of the EU. Ireland would have input into the negotiations, but with the 26 other countries and the commission involved, clout would be limited.

The outcome of those negotiations, to be concluded within two years according to article 50 of the EU treaties, could easily take longer to reach, such would be the complexity of unscrambling the egg of four decades of membership. Only at the end of that process would some clarity emerge about the new shape of the economic relationship between Ireland and Britain. It is possible that any deal which eventually emerges would not create significant barriers to trade and investment between Britain and Ireland. But it is more likely that barriers would increase significantly. That is because those who advocate Brexit would not accept the kind of sovereignty-impinging relationship that, for instance, Norway accepts as part of its membership of the European Economic Area.

The new relationship could be similar to the very messy arrangement with Switzerland. There are significant barriers to trade in services between the Alpine state and EU. Barriers of this kind would be particularly bad for Ireland as we do so much services trade with Britain. If the deal that emerges is more akin to the recent deal the EU and Canada have done, the barriers would be greater still.

If there is one thing that economists agree on it is that the more barriers that exist to commercial activity, the less commercial activity that takes place. In short, anyone who believes that Britain outside the EU will not damage the Irish economy simply doesn't understand how European economic relations work.

If Ireland's relationship with Britain has become more complicated, and threatens to become an awful lot more complicated, the relationship with the US remains rock solid, as last week's annual shamrock exchange at the White House showed. Although, and again going back to the sweet spot of 2000, Barack Obama has not had the same exceptional level of interest in Ireland as Bill Clinton did, the current president's stance towards Ireland and Europe has been measured and thoughtful. Transatlantic relations are in good shape.

That may change radically. The coming presidential election is likely to be a fork in the road in relations unlike any before, as it looks very likely now that Hillary Clinton will face off against Donald Trump.

A return of the Clintons to the White House could hardly be better from an Irish perspective. Hillary Clinton and her husband have a deep knowledge and awareness of this country. While it would be wrong to suggest that the hard-headed Clinton would do much of specific benefit for Ireland, the goodwill that exists would be invaluable.

By contrast, a Trump presidency would range from bad to disastrous for Ireland, and Europe. Last week the Economist Intelligence Unit ranked that eventuality as the sixth-biggest risk facing the world now, noting among other things "his hostile attitude to free trade, and alienation of Mexico and China in particular, could escalate rapidly into a trade war". Trump appears less hostile to Europe, but given his views and temperament, a transatlantic trade war could not be ruled out.

There is a particular risk for Ireland of Trump coming to power. He has consistently said that he would force American companies to shift production back to the US. Very specifically, Trump has said this about a company that employs 5,000 people in Ireland - "we're gonna get Apple to start building their damn computers and things in this country, instead of in other countries."

The third major pillar of Ireland's relations with the world is the EU. It has changed a great deal since the turn of the century. Back then the relationship for Ireland was in a Goldilocks moment - neither too hot (close) nor too cold (distant). Now new constraints and commitments have changed that, making membership less benign from an Irish perspective.

Some of the new constraints, it should be said, are good. Stronger rules on managing the public finances, for instance, should help prevent the political class from doing what it has managed to do twice in a generation: bankrupt the state. But other constraints are less welcome, including new pressures around corporation tax.

And then there is the euro. At this juncture it is very difficult to argue that the single currency has brought net benefits to those who use it, either economically or politically. Despite the motivation behind the creation of the single currency, which was to bring European countries closer together, it has done exactly the opposite, creating tensions where tensions would otherwise not have existed.

The euro crisis has also brought about another change that it was designed to prevent - German hegemony. The euro crisis generated challenges which the institutions around the single currency were unable to rise to. A vacuum was created. As the most powerful country in Europe, Germany filled that vacuum. This has not always been healthy, not for Germany or for others in the single currency.

The manner in which this power is wielded can sometimes raise concerns. Most recently Angela Merkel simply bypassed the EU institutions and other member states when dealing with Turkey on the migration crisis. It must be of serious concern to other member states that Merkel would seek to do a deal with another country on behalf of all EU member states without even consulting them.

A hegemonic Germany, a Brexit and a president Trump would be the perfect storm for Ireland. Such a storm is still unlikely, but it is possible.

Sunday Independent

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