Friday 22 February 2019

Brendan Keenan: 'We have no reason to be smug when it comes to not talking about things'

A study has found that even with a hard Brexit Ireland would still be better off in the EU
A study has found that even with a hard Brexit Ireland would still be better off in the EU
Brendan Keenan

Brendan Keenan

To quote you know who; despite everything, it is still not clear whether this is the end of the Brexit business, the beginning of the end or, heaven help us, perhaps only the end of the beginning. There seems to be a way to go yet on the UK learning curve.

Commentators on all sides seem to think that free trade is such an obvious good thing that a new deal can be agreed with the EU without all the political paraphernalia of membership attached.

Economic theory says they are right about the advantages of trade, but history shows they are naïve about the politics. Countries do not behave like that, not least because their citizens instinctively dislike free trade.

The EU's unique achievement was to have member states give up national sovereignty over trade in return for the benefits of the single market.

They are not going to let anyone else have both; especially since it is becoming clear that the overall gains from free trade will have to be distributed differently among the winners and losers than has been the case so far.

Remainers found it difficult to make this kind of argument because it has never been part of British attitudes to membership. Historians may wonder why, after 1945, the UK did not continue the age-old policy of keeping Britain as the balancing power in Europe - which would mean being active in its affairs, even if disruptive. It might not be pretty, but it is a role.

Instead, the absence of any coherent policy towards Europe will continue to cause trouble, no matter what kind of Brexit finally emerges - even if it is no Brexit at all. It is a depressing thought, and an alarming one for Ireland.

We have nothing to be smug about when it comes to not talking about things.

With the possible exception of defence (where only one line of argument is permissible anyway), the future of Europe and the place of small nations in it are not seen as fit subjects for consideration.

The events of the last two years have demonstrated the dangers of that.

One thing we share with the British is that any attempt at serious discussion about the EU quickly becomes a debate about membership itself.

The difference is that Leavers have always been a small minority here, but a sizeable one over there - which morphed into a majority in the referendum.

This obsession with membership has unfortunate consequences.

One can be as critical as one chooses about the performance of an Irish government without calling the existence of the Irish State into question. That is not the case with the EU institutions.

The criticism of the ECB's role in the Irish bailout was an exception, but it took an existential crisis to produce such plain speaking. Even then, most of the plain speaking came from outside the governing class - although former Central Bank boss Patrick Honohan deserves special credit as the plainest-speaking insider.

Politicians and officials are generally too terrified of the eurosceptic label to risk saying anything worthwhile at all.

Their fear may be misplaced: surveys show that, during the bailout, belief in the EU fell far less than approval of the ECB.

The Irish public may draw more of a distinction between the performance of the EU and its existence than its rulers and opinion-formers give it credit for. But it has been left largely to the small band of full-blooded Irish sceptics to provide opposition to government policy on Brexit.

A spirited attempt to do just that was made in a recent article by Dr Ray Bassett. He is that rare specimen, a eurosceptic from the ruling elite. He is a former Irish ambassador to Canada who, in the Department of Foreign Affairs, was intimately involved in working on the creation of the Good Friday Agreement.

This puts him in a better position to challenge the overwhelming consensus than the general run of sceptics.

He makes the point that Ireland's links with mainland Europe are largely related to the multinational companies located here.

Irish-owned companies, especially the small- to medium-sized ones, trade much more with the UK. We have been here before with this argument, in the creation of the European monetary system in 1979, and the euro 20 years later. The costs to the multinational sector presence from a split with Europe were deemed to be more dangerous than the costs to the domestic sector of a split from sterling.

This turned out to be correct.

Sterling did not depreciate against the euro and multinational activities expanded beyond the wildest dreams of anyone bar Steve Jobs. But it could have been otherwise, and the danger of interest rates inappropriate for the Irish economy did turn out to be worse than expected - and is still there.

Yet there is even less debate on Brexit strategy than on the currency in 1999, even though agri-business and rural development are clearly under a greater threat from Brexit than they were from the abolition of the Irish pound.

One reason for the silence is that the such a debate would involve the possibility of Irexit - and that is a horse of a very different colour. It is Dr Bassett's chosen steed, where a 'soft' Irexit sees all of Ireland end up a position not dissimilar to the regulatory alignment and links to the UK which the Irish government proposes for Northern Ireland.

He finds it hard to understand why Ireland put all its eggs in the EU basket, when the UK is such an important trading partner and Northern Ireland such a knotty problem. The explanation seems to be that having more than one basket would represent less than full EU membership for Ireland. That really is constitutional change.

As such, it is about more than economics. It would end the 50-year national strategy for Ireland's place in the world - even if the details of the strategy are a bit vague. It would take a lot of economic damage to overturn that political imperative, but the question is whether Irexit be any less damaging.

As it happens, Ronald B Davies of UCD and Joseph Francois at the University of Bern World Trade Institute have done some work on more or less exactly that, in a paper for the 'Economic and Social Review'. They look at the consequence of a hard Brexit - a much bandied about phrase but in this case the extreme version, where there is no deal and the UK operates under World Trade Organisation rules and tariff structures.

The economic damage this would do to both countries has been well studied, but what if Ireland left the EU as well? The paper has four scenarios for that, depending on the nature of the new trade relations forged with Britain.

Dr Bassett's thesis is probably best represented by the fourth, where Irexit is accompanied by continued integration with the UK market, rather than WTO rules between the two.

The conclusion in the paper is that Ireland would still be better off remaining in the EU, even though Britain had departed completely. Last week's comments from the Taoiseach are correct - the economy keeps growing - but misleading. By 2030, national income is over 5pc less than it would be without the hard Brexit.

The key finding, though, is that this becomes a 7pc drop if Ireland leaves the EU as well - a third more than if it remained a member. The difference in wages, especially for those with skills, is less than one might expect but there is a 45pc collapse in exports to the EU, compared with little or none if we remain a member. True, most may be multinational exports, but even so.

As the authors freely admit, there are a lot of caveats in this kind of model.

That is inevitable when one is forecasting the unprecedented.

It is especially true for estimating the effects on domestic SMEs and agri-business in general. They suffer disproportionately more in every scenario, but it takes a lot of heroic assumptions to believe Irexit would save them.

A more certain conclusion is that Ireland's best, even only hope, is no Brexit or a final deal which preserves at least the essence of the customs union.

The troubling question is whether Irish government policy made that happy outcome more likely.

It requires some very heroic assumptions to say that it did.

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