| 6.4°C Dublin

Brendan Keenan: 'Nerves jangle as statecraft fails in bewildering Brexit maze of smoke and mirrors'

Close

Yellowhammer: Prime minister Boris Johnson’s government was forced to publish its document on the forecast effects of Brexit on everyday life in the UK. Photo: PA

Yellowhammer: Prime minister Boris Johnson’s government was forced to publish its document on the forecast effects of Brexit on everyday life in the UK. Photo: PA

Yellowhammer: Prime minister Boris Johnson’s government was forced to publish its document on the forecast effects of Brexit on everyday life in the UK. Photo: PA

The word in the West on my recent travels was, thank goodness, for the strong dollar. It has been a good year for tourism, despite the fact that the traditional business from Britain and Northern Ireland all but disappeared.

I don't know if this will show up in the statistics. It was not a scientific survey and statistics are a funny thing, but it is clearly another consequence of Brexit and, with or without statistics, it has been difficult to get such consequences centre stage.

Until now. One problem is that data lag events, so it can look as if dire warnings have not materialised. But recently they have begun to catch up. In Britain, the data are pointing to the magic headline-grabbing word "recession".

The totemic two quarters of falling output may describe the current situation. Preliminary figures show the UK economy shrank by 0.2pc in the three months to June. There was considerable relief among Brexiteers when July showed a small expansion.

The trouble with statistics was shown by the analysis that the decline was relative to a good first three months - but that was largely due to stock building by firms worried about a no-deal Brexit. July's "recovery" may also be due to another outbreak of Brexit nerves.

What is missing from the British debate is the indisputable consequences which have already arisen from the crisis. Sterling reached its lowest level in 34 years at the beginning of this month. It has recovered a bit but there will be a further sell-off if the currency market bets on a Brexit deal turn out to be losers.

That follows the quite clear evidence that the car industry envisages ending up with little more than assembly plants for the UK market and that aerospace may migrate altogether. Whatever the harm done so far, the real damage lies in the future.

Yet it took last week's "Yellowhammer" government document about the effects on everyday life to ignite the debate about what a disorderly Brexit might mean. Medicines and empty supermarket shelves we can all understand.

Mr Johnson's government was forced into its publication. Its first response was to say that it would produce an update which will show that things will not be quite as bad as that. It remains policy not to frighten the public about the consequences of a disorderly Brexit; presumably on the somewhat spurious grounds that this would weaken the UK's hand in negotiations with the EU.

A similar policy has been followed in Ireland, for reasons which are fundamentally the same. Too much talk about what would happen after a UK crash-out might weaken public support for the official stance of risking such an outcome rather than abandon the demand for a legally binding all-Ireland single market.

As the deadlines loom, the risks are starting to hit home, both in Britain and Ireland, and the debate is starting to change.

In this country, as the veil of silence begins to tear, the results have been almost comical.

We were told that ministers were shocked by a Cabinet briefing on the consequences of a disorderly Brexit. Don't they read the papers? In fact, the Government and State organisations have been more than open about what might be involved, but somehow it never sparked any serious debate.

The suspicion is that the shock was the realisation that ministers might now have to face up to the consequences so clearly outlined, and defend their failure to prevent them. And not just ministers.

Business Newsletter

Read the leading stories from the world of business.

This field is required

There was the curious case report of Micheál Martin's anger at discovering he had been misinformed about the nature of Border checks after a no-deal Brexit. He is definitely better informed than that. But the cosy consensus around the hugely ambitious backstop policy will not survive next year's general election campaign, if it turns out to have been too ambitious by half.

The Taoiseach may have been shocked by all the shock; choosing the same day to paint a more reassuring picture. This was backed up with independent forecasts as to how the Irish economy would fare. But there again, statistics are funny things.

As Mr Varadkar said, the gist of the forecasts is that jobs will be lost but employment will still grow; growth will be slower, but there will still be growth. In his view, that means there will be no return to austerity.

It is a rather strict definition of austerity. This writer certainly got a shock when Finance Minister Paschal Donohoe's Budget plans were seen to include no reductions in personal taxes and, pari-passu, no automatic fiver a week increase on social welfare and pensions.

With an election widely expected next year, a Budget like that may not qualify as austerity, strictly speaking, but it is austere. It implies deep concern in the Department of Finance over the costs of a disorderly Brexit, especially since it includes the €4.5bn earmarked for borrowing.

By an unfortunate coincidence, Mr Donohoe's statement overshadowed the one from the Irish Fiscal Advisory Council (IFAC). The two documents need to be studied together. In the council's view, the public finances are not in a good position to be saddled by such an increase in borrowing - equivalent to almost 2pc of national income.

It is actually a bigger sum than Mr Johnson is touting, with much publicity, for an economy eight times larger. Merrion Street may have in mind the much talked-of possibility that next year will see a widespread recession, whether caused by Brexit or coincidental (in which case a disorderly Brexit will make it worse).

In the 'Project Syndicate' magazine, the contrarian economist Nouriel Roubini outlined the shape of a possible supply-led recession, as distinct from the 2008 crash which was led by a collapse in demand for debt.

He says the China-US trade conflict is already fuelling a broader process of de-globalization, because countries and firms can no longer count on the long-term stability of integrated supply chains. As this continues, global production costs will rise across all industries.

Mr Roubini sees an added twist where technology will combine with geopolitical interests in alarming ways. "The presence of a 5G chip implies that anything from a toaster to a coffee maker could become a listening device. If Huawei, a leader in this technology, is widely perceived as a national-security threat, so would thousands of Chinese consumer-goods exports."

Traditional remedies such as cutting interest rates are ineffective when the problem is reductions in supply and there is no room for rate cuts anyway. To these kinds of global risks must be added the well-established dangers to Ireland from Brexit, which now include large-scale Government borrowing.

The most recent comment from Moody's credit rating agency says the state of the public finances will be the key element in maintaining Ireland's good, but not perfect, rating.

"A further significant reduction in public debt could lead to an upgrade, while indications of waning commitment to sound public finances and lower public debt could put downward pressure on the rating," they say.

A difficult choice in a post-Brexit crisis but the agency also notes that there are risks for the economy in both directions. Should a last-minute deal be pulled from the hat, overheating could become critical, with unemployment already below 5pc and wage growth accelerating over the past year, despite all the uncertainty.

Events in the last week or so have clearly increased the chances that cooling, rather than fuelling, might be the task ahead. It would certainly be preferable to no deal but cooling an economy is even more difficult, technically and politically, than warming it up.

The prospect of being hanged so comprehensively on November 1 has concentrated minds everywhere. It also brought to the fore one of the many lesser-known Brexit complexities - that it is possible to have an orderly no-deal exit as well as a disorderly one.

Another ratings agency, DBRS, highlighted the scenario of a "technical no-deal" Brexit which would see the UK leave the EU, but be followed by an almost immediate agreement on key transition terms.

This is different from a formal withdrawal agreement and transition period. A lot of spit would have to be swallowed, including defining "no deal" in the British parliament's legislation banning such an outcome.

Given what has happened already, one cannot be optimistic but there are opportunities to be taken. About the truest thing anyone has said in all of this has been Mr Johnson's unexpected description of not taking them as a failure of statecraft.

Among the shocks has been the willingness of politicians in Dublin, London and Belfast to contemplate a crisis which might be worse than 2008, for reasons which any realistic long-term scenario of the UK's relations with the EU suggests will turn out to be completely spurious.

Alas, this inability to separate tactics from strategic objectives, and consequences from actions, is not confined to Brexit.


Most Watched





Privacy