Wednesday 26 June 2019

Richard Curran: 'Batten down the hatches - a no-deal Brexit just got a lot closer'

Boris Johnson told a Dublin audience recently that he thought the backstop was ‘a convenient fiction. Photo: Steve Humphreys
Boris Johnson told a Dublin audience recently that he thought the backstop was ‘a convenient fiction. Photo: Steve Humphreys
Richard Curran

Richard Curran

Political crises bring out the best in some people and the worst in others. What is it about Brexit that when it comes to the British political classes, Brexit's unique brand of toxicity only serves to bring out the worst?

This was never more evident than in the House of Commons last week when British Prime Minister Theresa May dumped the backstop as government policy and decided to do a U-turn on the need for a legally binding safety net to ensure there is no hard border in Ireland.

The British government is now truly in unique territory where ministers are saying the backstop must go, having agreed as a government, to introduce it in a major international agreement signed by their prime minister.

It might have some credibility if a different British government or different prime minister was advocating this new position for pragmatic reasons. But Theresa May remains in place.

There have been so many Brexit phrases in the last two and a half years which have meant different things to different people. When Theresa May began to yield to reality in the negotiations by softening her position, some in Westminster described it as the 'Brexit betrayal'.

When an EU Commission spokesman said there would be a hard border in a no-deal scenario, it was seen here as a 'Brexit backstab'. But the most unnerving and slippery phrase used about Brexit came from Boris Johnson when he was interviewed in Dublin by Bryan Dobson a few weeks ago. He was asked why he signed up to the backstop in December 2017, given that he actually sees it as unnecessary and unacceptable.

Johnson said he saw the backstop at the time as a "convenient fiction" - something which simply allowed the talks to progress.

Former Brexit secretary David Davis at the time said he saw it as a "statement of intent" rather than something that was legally enforceable.

These are the very reasons why the Irish Government was right to push for a backstop in the first place. How could any sovereign government trust the word of someone who signs up to something in writing only to say they simply saw it as a convenient fiction?

Theresa May saw it through as far as a vote defeat in the House of Commons but has now abandoned it. The backstop may well be politically dead, as far as getting it through the House of Commons goes, but how could the Irish Government or Brussels negotiate with such a failed British government leader?

Unfortunately, the prime minister's decision to put the stubbornness of a minority in her political party against the interests of her country, has brought the whole process closer to a no-deal scenario in which everybody loses. The suggested alternatives to the backstop include:

  • a trusted trader scheme - which will help with large-scale businesses but will still require regular physical checks of goods. It would be a smuggler's charter without regular actual checks.
  • mutual recognition of rules with the EU - This simply won't work because it implies the EU would recognise UK rules while the UK reserves the right to introduce its own rules. It makes no sense unless there is a formal agreement not to change rules.
  • technological solutions - These remain something of a illusive fantasy.
  • time limit on the backstop or unilateral exit from it - this means it is not a backstop at all, just an extension of the transition period.

The path through this mess which doesn't end up with a no-deal exit is becoming harder to identify. A second referendum looks more distant after this week. It is quite possible that a second referendum in the short term would bring about a similar leave result anyway. An acceptable deal that protects the status quo along the Border is disappearing.

The ratcheting up of rhetoric around the Border issue has got so bad, there is an expectation all along the Border that any kind of infrastructure built there in the future will be blown up. People would now be surprised if it wasn't. This contributes to making it a self-fulfilling prophesy.

The pressure on the Irish Government to back down on the backstop is already substantial. It will build and build, even if the British government secures an extension to the March 29 deadline. Dublin is very much in the Tories' sights. The British government will target the Irish Government week-in and week-out until the cracks appear.

It really is time for businesses to batten down the hatches and prepare for the worst.

Smurfit share price faces a long road back after latest hit

Paper and packaging giant Smurfit Kappa saw its shares take a hit on Thursday as the stock fell by 5.5pc. It wasn't the only blue-chip Irish stock to fall but it put a dent in what had otherwise been a pretty solid start to 2019. Smurfit shares fell to €25.18 despite completing a new €1.3bn revolving credit line with 21 banks and a successful €400m bond placing.

The original bond target had been €300m but there was a strong appetite among investors. The yield was 2.75pc which was very similar to a 2.8pc yield on a €600m bond issue last year. The share price blip puts into focus the decision by management and the board to rebuff a takeover approach from International Paper (IP) last year. IP came in with a revised take-it-or-leave-it offer of €38.80 back in June but the Smurfit board did not want to seriously engage.

As of this week Smurfit Kappa's market capitalisation is €3.2bn lower than the value placed on the company by IP.

According to FT market data, nine analysts offering 12-month price targets had a median target of €34.75, with a high estimate of €39.05 and a low of €25. At the time of the rejection of the IP approach, Smurfit Kappa said it believed it had "superior prospects" as a standalone business and it remained "excited" about short, medium and long-term prospects.

Perhaps it only needs time. But how much time?

Low-key Land Development Agency is in it for the long haul

Housing minister Eoghan Murphy announced details of the new Land Development Agency back in September. At the time it said it would have €1.25bn to invest in procuring State land and providing 150,000 housing units over the following 20 years.

Its establishment was described in dramatic terms and compared with the vision and foresight used in setting up ESB back in the early days of the State.

It is definitely a long-term project and doesn't seem to be in as big a hurry as the minister was in deciding to announce it.

Its chief executive John Coleman is "interim" chief executive. Its chairman, former Department of Finance secretary general John Moran, was appointed in December as an "interim" chair.

This is because it is still awaiting the primary legislation to underpin it.

After a high-profile launch, it is staying fairly low-key and it currently has a temporary holding website. It says its updated full website is "coming soon". It also says it is involved in preliminary work with State bodies on eight sites.

Sounds like it's playing the long game.

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