Thursday 21 November 2019

If Britain quits the EU, should we be next?

We stand to lose more than our closest ally if the UK goes to the polls over an exit from Europe, says Colm McCarthy

EXIT STRATEGY: If David Cameron’s Conservative Party win the British election, there is likely to be a referendum in the UK on whether they should remain in the European Union
EXIT STRATEGY: If David Cameron’s Conservative Party win the British election, there is likely to be a referendum in the UK on whether they should remain in the European Union
David Cameron
Colm McCarthy

Colm McCarthy

the decision to abolish the Irish currency and join the eurozone in 1999 was a break with the precedent regarding Ireland's membership in the EU itself. Ireland applied to join the EU's forerunner, the Common Market, in the 1960s only when Britain applied; withdrew that application when British membership was vetoed by the French and eventually joined, alongside Britain, in 1973. But Ireland chose to join the euro even though the British decided to stay outside and retain sterling. There are few commentators in Britain today who regret their decision and plenty in Ireland who regret ours.

The attachment of the Irish policy establishment to all things European may be about to face another test. Britain could conceivably quit the European Union within a few years, leaving Ireland, if it stayed in, for the first time bound to a European political and economic system without our nearest neighbour and biggest trading partner.

According to a report from the London-based think tank Open Europe, released last week, there would be costs, both political and economic, for Ireland if the British chose to leave and Ireland decided to remain. It is reasonable to guess that there would be costs to leaving alongside the Brits, but the Open Europe report does not quantify them.

Chances are, a British exit would be bad news for Ireland whatever the response, and it is understandable that Irish politicians have been lighting candles in the hope that there will be no UK referendum - the likely outcome if the Conservatives do poorly in the general election on May 7. But if the Tories lead the next government, there will almost certainly be an early referendum and recent opinion polls suggest it could be close.

The Open Europe report calculates, using a complicated economic model, that the impact in the UK itself would be small, possibly a little negative, possibly a little positive, but no big deal.

For Ireland though, the estimate is that the impact would most likely be negative, less than catastrophic but not small enough to ignore. This assumes Ireland stays in the EU as the British leave, and there is a whole host of other assumptions feeding into the calculations which make them a bit speculative.

The report's authors stress that the impact of a British exit on Ireland is likely to be pretty significant, simply because of the strong flows of trade in both goods and services between the two countries. They clearly understand that Ireland is an Atlantic, rather than a continental European, economy. The report also notes that, with Britain out, a protectionist bloc led by France would enjoy a blocking minority under the EU's weighted voting system.

In the past, Britain, Germany and others favourable to freer trade have prevailed. Freer trade, particularly in the context of the deal on Transatlantic trade currently under negotiation, is important to Ireland. If Ireland was given the choice of a country to drop from the European Union, Britain would be bottom of the list.

By the early morning of May 8, it should be clear whether the referendum is on or off. Whatever the outcome, it is already obvious that Britain is no longer a full participant at the top table in Europe, now increasingly focused on the survival of the ill-advised common currency. There is already a two-tier Europe, with few in Britain regretting exclusion from the early Saturday morning Save-the-Euro fudgefests in Brussels.

The Labour government which ruled in the UK until the last election in 2010, did a poor job on financial regulation but has been given insufficient credit for staying out of the euro. There is now no prospect of the UK joining the misbegotten common currency and UK politicians appear happily, even gleefully, reconciled to their junior status in managing the mess.

The recent book* on these issues from the IIEA (Institute of International and European Affairs) acknowledges Britain's current ambiguous status in the European project.

Outside the eurozone, Britain will never again be a full member ranking with France and Germany, assuming the common currency survives. Even under a Labour-led government there is little likelihood of a tilt to a Europhile position - Labour has its Eurosceptics too and is well able to read the opinion polls.

If the election produces a pro-referendum result, there will be a negotiation prior to the actual referendum designed to secure a 'deal' for Britain and it seems clear that David Cameron would recommend that Britain stay in Europe if a reasonable deal can be secured. If Cameron, as prime minister, was unable to recommend the deal, however, the referendum could result in a British exit.

There would then be a second negotiation under the European treaty's article 50 on the detailed terms of departure. What stance should Ireland adopt during these very different negotiations, in both of which important national interests would be at stake?

A good point of departure would be to take a leaf out of the popular playbook in the larger countries since the eurozone crisis broke: pursue the narrow national interest without apology, and with no regard for romantic notions about European ideals, solidarity or 'ever closer union' unless it suits you.

The IIEA book is less than clear-eyed on this score, it does contain though a statement, in the essay by Tom Arnold and James Kilcourse, which neatly summarises why a possible British exit matters:

"Without the UK, the EU would lose a strong advocate of an open and liberal Europe. The UK's strong support for free trade, including initiatives that are important to Ireland like the Transatlantic Trade and Investment Partnership, would be muted. Ireland would lose an ally in the field of financial services and taxation, and would probably face greater pressure from continental partners on the question of its corporate tax rate.

"Other priority policy issues such as services liberalisation and the Digital Single Market would suffer a blow. Moreover the balance of power within the EU would shift to the south and east, where Ireland has few natural allies on strategically important issues."

But nowhere is there an ounce (sorry, gramme) of scepticism about any component of Ireland's current architecture of external economic relations, which critically consists of membership of both the euro and the EU.

The euro has been an acknowledged disaster, and it should be uncontroversial to lament both the rash Franco-German decision to launch the experiment and the rash Irish decision to join. If the biggest trading partner and the only country with which we share a land frontier may quit a European Union that looks increasingly dysfunctional, the case for staying aboard should be argued rather than assumed.

Revealingly the same Arnold/Kilcourse essay nominates a national priority as "Keeping Ireland at the heart of Europe..." How realistic is this with Britain not just out of the Euro but out of the EU altogether?

Evokes Jean Claude Trichet for some strange reason, and the bombs going off in Dublin.

* 'Britain and Europe: The Endgame, An Irish Perspective', O'Ceallaigh and Gillespie (eds), Institute of International and European Affairs, April 2015

Sunday Independent

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