Tuesday 21 January 2020

'I've spoken to foreigners who think we're part of UK and will also leave EU'

German chancellor Angela Merkel greeting British prime minister David Cameron in Hannover this week. Photo: AP Photo/Michael Sohn
German chancellor Angela Merkel greeting British prime minister David Cameron in Hannover this week. Photo: AP Photo/Michael Sohn
Dan O'Brien

Dan O'Brien

The words of a US president always carry a lot of weight. The words of Barack Obama, a man seemingly without character flaws as a politician and who is popular and respected across most of the world, carry more weight than some of his predecessors.

The American president's extraordinary comments in Britain last week might just have altered the course of the debate in our nearest neighbour about checking out of Europe.

The leader of the world's most powerful country told Britons that they would "go to the back of the queue" in their relations with his country if they vote themselves out of Europe in eight weeks' time.

It was as blunt an intervention in the Brexit referendum campaign as anyone could have imagined. Whatever one thinks about the appropriateness of a foreign leader intervening so directly in a referendum campaign in another country, Obama's slapping down of the Brexiters, no small number of whom are utterly deluded about Britain's capacity to influence international affairs, was a much needed reality check. It will probably push a good number of wavering and undecided voters into the pro-Europe camp.

That is very positive from an Irish perspective. Britain decoupling from Europe has always been a strategic nightmare that Ireland has never wanted to face. If our single most important partner leaves Europe and drifts out into the North Atlantic we will be pulled between two poles that are both vital for our prosperity. In that position Ireland will be forced to make a choice on which direction to go.

The tragedy is that both options are very much worse than the status quo. But because our prosperity now depends much more on continental Europe than Britain in terms both of trade and investment, our interests overwhelmingly dictate that we choose Europe over Britain if it comes to making that very painful choice.

And make no mistake it will be painful, as every single study done on the effects of Brexit for Ireland has found. However boring most people find the EU, and whether one likes the enterprise or despises it, it is the only game in town when it comes to the politics and economics of our continent. For one of its most important countries to leave the pitch for an inevitably unknown and uncertain future would make that country poorer, less secure and less relevant in the world (the honest and intelligent pro-Brexit people accept this, but believe that the price is worth paying for sovereignty reasons).

The new government faces big choices and challenges on Brexit. In my view the first thing that needs to be done is to signal very clearly to the world that Ireland will remain in the EU regardless on the outcome on June 23. This needs to be shouted from the rooftops because it might not be as clear to the rest of the world as some here think - this writer has had plenty of conversations with informed foreigners who believe Ireland is still a de facto province of the UK and/or assume that we would follow the British out the door if they decide to leave. People who harbour this notion need to be disabused of it, not least because if any uncertainty about Ireland's position emerges it could very well spook foreign companies already located here and scare away those who are thinking of setting up shop in Ireland.

But the really big challenge would come when the terms of Britain's divorce from Europe have to be negotiated. Ireland will be just one of 27 members of the bloc which will have a say in the talks on the EU side. As a small country among many, Ireland will have limited influence on the outcome, despite having a bigger interest in the terms of the deal than any other member country. As if that were not a big enough challenge, Irish negotiators will have two divergent interests to attempt to reconcile.

On the one hand, giving Britain the best deal possible will be in our interests so that there is as little disruption to our hugely important economic relationship as possible. That would mean, in essence, pushing to give Britain a deal as close to membership as possible. On the other hand, giving Britain a deal that has all the benefits of membership but none of the costs is not in our interests, the most important of which is that such an arrangement would put Britain in a position to undercut Ireland as an investment location in multiple ways, including, for example, by freeing it from EU rules which prohibit giving subsidies to companies.

It is very far from clear that these two imperatives - of giving Britain a good deal without allowing it to have the best of both worlds - can ever be reconciled.

And it gets even worse - the negative effects of a possible Brexit are already being felt as money flows out of Britain and pushes the value of sterling down. As recently as last November, Irish-based companies selling into the British market were getting well over €1.40 for every pound of sales they were generating. Now they are getting less than €1.30. For many businesses such a big reduction in revenue is hard to deal with. For others it makes exporting to Britain unprofitable. In some cases it could make the difference between staying in business and going under.

But the fall in sterling since November (which has been partly reversed over the past few weeks) would be small beer compared to what would happen in the event of a Brexit.

If there is a vote to leave, the surest things one can say in the short term is that the British pound will tank. That is not only because of the huge uncertainties of leaving for the British economy, but also because sterling has long looked overvalued anyway. That, in turn, is because Britain is not paying its way in the world.

Last year, the gap between what the UK earned from the rest of the world and what it paid out to foreigners was the biggest since the Second World War. There are few better indicators of a currency being over valued than when such a big gap in a country's balance of payments exists. It is perfectly possible that sterling would fall to parity with the euro after a Brexit vote. That would not only hammer Irish exporters to the EU, it would ensure that an awful lot of people living in the UK would stay at home this coming summer. That would be bad news for the hospitality sector the length and breadth of the country. Brexit would be bad for Ireland. It would also be bad for Britain. It is to be hoped that Obama's tough love approach last week will make that clearer to our neighbours and that they vote resoundingly to stay.

Irish Independent

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