Wednesday 28 September 2016

Brexit to shorten Government's life

The so-called 'fiscal space' will be confined to the point of non-existence and the Government will fall next year, says Jody Corcoran

Published 26/06/2016 | 02:30

IMPACT: Pro-EU protestors in London on Saturday after the British public voted to leave the European Union. Photo: Getty
IMPACT: Pro-EU protestors in London on Saturday after the British public voted to leave the European Union. Photo: Getty

The Brexit referendum result will have significant political impact here, not least in that it will further shorten the already expected-to-be-short life span of the new minority Government.

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As a result of the referendum's outcome, the most inherently unstable Government here in at least a generation is facing into a period of the greatest political and economic uncertainty, probably since independence.

That in itself is enough to give even the most optimistic international investor a fit of the heebie-jeebies.

Behind the scenes, however, the country's permanent administrators, the civil and diplomatic service, will be on top of all or most of the expected repercussions of the UK's decision to withdraw from the European Union.

As such, the administration at this level will have prepared a contingency plan designed to minimise, insofar as that is possible, the impact of Brexit.

Ultimately, this will involve skilled and delicate negotiations, but no matter how relatively well those negotiations proceed at a European level, the consequences of Brexit are and will inevitably still be significant and have a real and evident impact on the country's still fragile economic recovery and, therefore, its people.

At a political level, the Government will seek to play down the extent of that impact, to sugar-coat it if you like, for the taste of investors abroad and the electorate at home. But there can be no disguising the reality: the so-called fiscal space, the Government's flexibility in its spending choices and, more generally, its financial well-being, will be confined to the point of non-existence.

In that new reality it will take all of the political skills of the Taoiseach, Enda Kenny, to keep together his tentative new administration.

It has been authoritatively estimated that, in the short term, Brexit will cost the Irish economy more than €3bn a year. The Government believes this shortfall will not become relevant until the Budget next year and the year after, and between now and then it hopes that the fallout from Brexit will be relatively well-managed at a European institutional level.

All of which will prove to be a forlorn hope. The Brexit impact is and will remain immediate and severe, a reality that needs to be spelled out in simple terms to people here.

Whether the Independent TDs, in the first instance, or the more opportunistic Fianna Fail backbench TDs come to accept that new reality must be in some doubt, however.

At a level, the Independents signed up for government and must now wear the boots; but the heebie-jeebies of international communities will be as nothing compared to those that the Independents in government faced with the latest entirely predictable public outrage when the fiscal space is shown to have disappeared.

As such, the prospects for a successful passage of the Budget this year must be in greater doubt than ever. In my view, the Budget next year will have little or no chance of being voted through - that is if the Government even lasts until then.

The country has just entered a period of huge instability, with even greater-than-before political uncertainty, the outcome of which will be difficult to predict but will probably result in a Fianna Fail-led/Fine Gael coalition designed to bring a much-needed five years of relative calm to a highly volatile situation.

All of this could be avoided, of course, if the likely new British prime minister, Boris Johnson, comes to some sort of arrangement, as his entire demeanour seemed to suggest would be required immediately after the Brexit result became known.

He will soon hope to re-open negotiations with Europe, perhaps to secure relatively meaningless concessions on the immigration issue, to then put the outcome to a referendum again, at which point the good citizens on the UK may or may not come to their senses. In the meantime, the damage has and will continue to be done.

Sunday Independent

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