Wednesday 21 August 2019

David Chance: 'Brexit is coming fast - but we still have little clue what its impact on us will be'

Ready or not: Tánaiste Simon Coveney announcing Government plans to ramp up preparations for a no-deal Brexit last week. Photo: Gareth Chaney, Collins
Ready or not: Tánaiste Simon Coveney announcing Government plans to ramp up preparations for a no-deal Brexit last week. Photo: Gareth Chaney, Collins

David Chance

You can only do the best with the information that is available but, as my colleague Kevin Doyle wrote earlier this week, when Tánaiste Simon Coveney said the Government was "ramping up" preparations for a disorderly Brexit, it was mostly the language that was being ramped up.

To be fair to the Government, there isn't much more it can do to inform people of the Brexit risks. It cannot, after all, coerce the 65,000 businesses that Fianna Fáil said had not yet applied for Economic Operators Registration and Identification numbers into getting them.

Please log in or register with Independent.ie for free access to this article.

Log In

What the Government can do, however, is to get ready to inject cash into businesses that run the risk of failing in the event of Brexit. It needs to get a waiver from the European Commission over state aid rules so as to be able to pump cash into at-risk businesses from Brexit Day One.

It is a bit galling to be presented with the bill for Britain's failure to grasp the economic realities of Brexit when the State is still lumbered with €200bn-plus in debt from Ireland's own economic mismanagement 10 years ago but, still, taxpayers will have to stump up or risk worse outcomes.

At least by comparison with the bank bailout, the kind of spending that may be needed to stop businesses disappearing completely is modest, according to a costing from Ibec, the business lobby, that says €500m would be needed in direct cash payments and subsidies to help these companies survive.

With just over 100 days to go until the second Brexit deadline, estimates of its economic damage remain just that.

The range of potential impacts on the UK economy is huge, with studies placing them in a range from a 5pc loss in economic growth to as much as 10pc.

That comes after the UK grew 61pc in real terms between 1995 and 2018, and did better than the EU average of 49pc over the same period.

For Ireland, the consensus is that losses will be amplified due to the exposure of exporters and the estimates for a disorderly outcome range from a 2.3pc loss in output to as much as 7pc.

Depending on which forecast you take, economic growth of 8.2pc recorded in 2018 could dip slightly this year or the economy could crater as firm close, tens of thousands are thrown out of work, and all those years of austerity to rebuild State finances and deliver a balanced budget could see us slide back into a deficit once more.

The first thing to note, despite the political noises from London and their attempts to bargain away the backstop, is that Brexit will hit growth in both the UK and the remaining EU states.

"Economically speaking, a hard Brexit (such as in a WTO scenario) is a shock that affects both the UK and the EU27 economies through various channels: trade in goods and services, foreign direct investment, migration, the exchange rate, uncertainty and the EU budget," Patrick Bisciari, from National Bank of Belgium, wrote in an extensive review of the literature on the economic impact of Brexit this month.

"Brexit is expected to induce losses to both the UK and the EU27. The losses for the UK may even be amplified if the above-mentioned channels also affect productivity, ie. if they are accompanied by negative productivity shocks," he wrote.

Of course, among the EU27 those losses will not be shared equally. Those will the closest historical links to Britain will be outsized losers, Ireland and Malta among them, while small open economies such as Belgium and the Netherlands, one of Britain's staunchest allies, will also be hit hard.

So why are we so different from the rest of the EU?

According to a study by three economists at the University of Leuven, the losses are higher in Ireland than in the UK in four out of seven studies, including the possible minimum and the maximum impacts.

"The rationale behind higher losses for Ireland than for the UK is that Ireland is a much smaller and more open economy than the UK and it thus relies more on trade," they wrote in a report.

"Macroeconomic estimates have also found that both Ireland and the UK are expected to face supply shocks due to Brexit as inflation is found to be higher and growth to be lower, while in most other EU countries the Brexit shock acts as a demand shock, lowering both inflation and growth," they said.

There is a bewildering array of Brexit options towards the harder end of the spectrum beyond the so-called 'Norwegian' and 'Swiss' models that would largely leave Britain's trading and political relationship intact, but end its say at the table when it comes to areas such as regulations that London would have to swallow to retain access to the single market.

Among those identified by Mr Bisciari are a so-called "deep and comprehensive free trade agreement" of the kind the EU has with Ukraine, or a "customs union" like that with Turkey.

Apart from wiping the smiles off the faces of Brexiteers when they are told that "Global Britain" is now working from the same base as Ukraine or Turkey, both of them require alignment with EU rules in varying forms and also restrict the ability to strike trade agreements with third parties.

On top of all of this, there is the now infamous backstop.

Avoiding a hard Border requires at least a customs union and some regulatory alignment, according to the review of economic outcomes by Mr Bisciari.

"In other words, an EEA (European Economic Area) scenario, an FTA (free trade agreement) or a WTO (World Trade Organisation)/no-deal scenario cannot meet the EU and Irish demands and the UK government's commitment to ensuring no hard Border between Northern Ireland and Ireland," he said.

Irish Independent

Also in Business