Wednesday 17 January 2018

Ministers spinning that Brexit is UK's problem, not ours

Minister for Finance, Michael Noonan TD: 'The referendum was in the UK. The main effects are in the UK, it voted to leave.' Photo: Gareth Chaney Collins
Minister for Finance, Michael Noonan TD: 'The referendum was in the UK. The main effects are in the UK, it voted to leave.' Photo: Gareth Chaney Collins
Donal O'Donovan

Donal O'Donovan

Budget 2017 will proceed as planned on this side of the Irish Sea, regardless of the British vote, the Cabinet's two most senior spending ministers insisted yesterday.

While that might smack of denial, given the links between the two economies, the point of the ministers' comments appeared to be aimed at stressing that Ireland is removed from the direct effects of the UK vote.

"The referendum was in the UK. The main effects are in the UK, it voted to leave," Michael Noonan said.

Mr Noonan also repeatedly refused to outline any immediate actions to shore up the State's finances in the wake of the surprise British referendum result.

There will be no immediate tax hikes or spending cuts here and Budget plans for 2017 won't change after the Brexit vote, he insisted.

Public Expenditure and Reform Minister Paschal Donohoe explained that thinking and the value of maintaining policies in a situation increasingly characterised by uncertainty.

"One reason we want to confirm that our spending plans and our fiscal space for next year are unchanged, is to tell people that the plan that we have for how we want to manage our domestic economy, and spending within our domestic economy, is not going to change," he said.

The fiscal space, or spending leeway, for next year is unchanged at just under €1bn, he insisted.

That was in sharp contrast to the UK, where Chancellor George Osborne warned yesterday that his country will now be worse off, and will need higher taxes and lower spending within months, after last week's vote. However Mr Osborne's counterpart in Dublin said it was too early even to assess the implications of the vote, and stressed than any financial challenges for the Exchequer won't come until 2018.

"If there are adverse consequences for Ireland, and there well may be, it's medium term but the extent of them will depend on what kind of settlement succeeds British membership and how the negotiations between the UK and EU progress," said Mr Noonan.

He added that he was "quietly hopeful" this country won't suffer a big shock from whatever settlement Britain and the EU reach in the wake of last week's vote.

His comments, and those of Mr Donohoe, provided an early insight into the Government's strategy for responding to the crisis.

In tandem to downplaying the immediate consequences of the UK vote, Mr Noonan set out the preferred outcome for this country's government, from negations now beginning between the UK and Europe.

It is for a deal that hands favourable terms to Britain, that keeps the country in the single market and maintains free travel, even outside the EU.

That will help maintain the huge €1.2bn of trade that flows between Britain and Ireland each week, Mr Noonan said, expressing a welcome clarity of purpose about the basis of our interests.

"Our strategic interests are to work with the UK," Mr Noonan said.

Until a deal on British exit terms is struck, the effects cannot be calculated, he warned. "It is not possible to measure what the effects would be on Ireland until we see what the settlement will be, because if the single market is fully maintained and the free travel is fully maintained, the effects on Ireland won't be great," he said.

"On the other hand if there is a very tough agreement negotiated with the UK we would have to run a different set of numbers.."

Markets paused yesterday, recovering some modest ground after a record breaking two-day crash that wiped out $3 trillion in global wealth and spooked investors.

But, despite the modest recovery, the UK vote is now without doubt a major global financial as well as political event. The market collapse puts the UK at the centre of that global storm, and George Osborne outlined tough measures to address the new situation.

But Ireland, whatever gloss ministers want to put on it, is also in the firing line.

The Iseq index of Irish shares fell even harder that Britain's FTSE 100, after the vote.

Rating agency Fitch said the vote to leave the European Union is negative for Ireland, "raising risks to growth and creating uncertainty around future relations with Northern Ireland".

While there are no immediate implications for Ireland's sovereign debt rating, the eventual outcome will depend on the severity of the economic dislocation of Brexit, Fitch said.

In the near term, its analysts think the most important impact will be through reduced domestic confidence, an explanation perhaps of why otherwise cautious ministers are so keen to play things down.

In the longer term, the prospect of gaining from a shift in foreign direct investment away from the UK and towards Ireland is "highly uncertain", while a real economic hit will mean lower growth, reducing the tax intake, and ultimately that all important medium-term fiscal, Fitch analysts warned.

Irish Independent

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