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Ireland can’t hope to avoid the pitfalls of Brexit

Uncertainty about rules threatens exporters and financial services

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Michel Barnier is in last ditch talks over Brexit. Photo: Olivier Hoslet

Michel Barnier is in last ditch talks over Brexit. Photo: Olivier Hoslet

Michel Barnier is in last ditch talks over Brexit. Photo: Olivier Hoslet

With EU-UK trade talks into yet another make-or-break weekend, the future economic pitfalls of Brexit outweigh the more immediate ones.

For EU lead negotiator Michel Barnier, this is the “moment of truth”.

The UK is accusing the EU of blocking progress, with UK Prime Minister Boris Johnson saying it’s for the bloc to “shift significantly” on fisheries if a deal is to be done.

The pound fell again on Friday on the news that talks were stalling, after gaining on more upbeat assessments of progress during the week.

However, markets are unlikely to be severely roiled by the prospect of no deal, having priced in that eventuality a long time ago.

“There are no undue illusions in the financial markets about the likelihood of a deal,” a senior EU official said, “so that means that it’s unlikely to have a great deal of consequences or turmoil in the markets.”

A second piece of good news is that the EU is actively encouraging Ireland to spend its way out of its Brexit and Covid difficulties, a far cry from the austerity prescribed during the financial crisis.

The bloc has set up a €5bn “adjustment reserve” in its long-term budget for countries and sectors most affected by Brexit.

And the European Central Bank has also offered to buy up just under €2trn worth of sovereign and corporate bonds to offset the worst of the pandemic.

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But Dublin Port warned this week that it would have to turn back drivers in the event of a 'no deal’ Brexit, while there were actual tailbacks of over 30km near the UK port of Dover as retailers stockpiled food and medicines.

While lorry queues and currency moves are an immediate concern, companies will need to look further ahead to avoid other Brexit pitfalls.

In Ibec’s latest economic outlook, it points to serious Brexit worries for the domestic economy from any hit to Irish food and drinks companies.

Food and drinks exporters are the most exposed to Brexit, and while they make up just 14pc of total Irish exports, they add billions to the economy in payroll and purchases. A Brexit hit to the sector would mean a “significant’ supply chain impact further down the line, the report said.

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Sovereign: Boris Johnson says he is taking back control for the UK. Photo: Alberto Pezzali /PA Wire

Sovereign: Boris Johnson says he is taking back control for the UK. Photo: Alberto Pezzali /PA Wire

Sovereign: Boris Johnson says he is taking back control for the UK. Photo: Alberto Pezzali /PA Wire

Confusion over product labelling, safety standards and customs rules means companies could also be looking at future product recalls, fines and even imprisonment as they trade under a new regime, according to the Centre for European Reform’s (CER) Sam Lowe.

“It is not a question of whether companies will break the law – they will – but how vigorously the EU and UK authorities choose to enforce the new rules,” Mr Lowe said.

Uncertainty could also undo the government’s work on trying to attract financial firms to Dublin post-Brexit.

According to global consultancy firm EY, Dublin is the most popular relocation destination for UK financial firms seeking to maintain a hold in the EU market.

But despite the UK approving 22 different ‘equivalence’ permissions for EU lenders, the EU has made a deliberate decision to hold back on doing the same. So far, it has only certified UK clearing houses and securities depositories, but has stopped short of approving UK lenders.

“The issue is not that investment banks have failed to prepare for new post-Brexit terms of trade – they have spent a lot of money doing so – but that the regulatory and enforcement environment is uncertain and discretionary,” Sam Lowe at the Centre for European Reform thinktank wrote in a note this month.

The issue remains a bargaining chip in the talks, with Brussels sources saying the UK wants to ringfence financial services from any future tit-for-tat retaliation on fisheries or state aid.

And, of course, Brexit will bring bad news for Irish fishing communities, whether a Brexit deal is agreed or not.

All options currently on the table mark a massive hit to the industry, which lands more than a third of its total catches from British waters (and up to 60pc of some stocks).

The EU catches around €650m worth fish - including high-value mackerel, cod and herring – in UK waters. The UK wants to claw back 60pc of that value after a short transition period, sources said.

But EU negotiators are offering much less (just over 20pc) and want to phase it in over 8-10 years - which would push the problem down the line, but would not eliminate it.

If there is no deal by December 31, the EU has tabled contingency plans to keep fisheries as they are for a year. But there is no guarantee that the UK will agree to it.

In his holiday message to EU citizens, European Council president Charles Michel said the the new relationship with the UK “might be awkward at first”.


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