Saturday 20 October 2018

Italy, Trump and Brexit mean the perfect storm is brewing

Are the Government and the banking system prepared for the growing risk of slump Ireland, asks Dan O'Brien

Threat: Will Trump take further measures against the EU? Photo: AP
Threat: Will Trump take further measures against the EU? Photo: AP
Dan O'Brien

Dan O'Brien

Ireland is a very open economy dependent on three major markets: the euro area, the US and the UK (in that order). All three now pose big risks.

The reigniting of the euro crisis has, predictably, taken place in the weakest country in the single currency zone: Italy. Its new government, formed by two populist parties, has made commitments which will push the country's already-teetering public finances toward the edge. Even if the coming crisis can be contained, it could have a significant impact on the Irish economy if the euro-area economy slumps, just as happened during the Greek phase of the crisis.

Continental Europe is Ireland's largest trading partner. The US is now in second place, having overtaken Britain in recent years. At the end of last week, Donald Trump hit some goods imported into the US from Europe with taxes. These breach World Trade Organisation rules. As had been flagged, the EU, which conducts trade policy for all member countries, hit back. If Trump takes further measures against Europe, as he has promised, the EU will hit back again. If the cycle continues, it will be only a matter of time before Irish goods exports to the US, worth €33bn last year, are affected.

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