Sunday 20 October 2019

Dan O'Brien: 'It starts and ends with Brexit - with the small matters of oil and elections along the way'

British Prime Minster Boris Johnson. Photo: AP Photo/Alberto Pezzali
British Prime Minster Boris Johnson. Photo: AP Photo/Alberto Pezzali
Dan O'Brien

Dan O'Brien

There are weeks when so much is happening that settling on a single topic to write about becomes impossible. This is one such week. Today's column considers three questions thrown up by developments over recent days.

Is a no-deal Brexit less likely?

Britain's Supreme Court decision on Tuesday, which found against Boris Johnson's suspension of Parliament, was yet another defeat for the man who has been prime minister for only two months. The decision further erodes the credibility of the British prime minister's "do or die" pledge to leave the EU at the end of next month. That means the probability of the most disruptive no-deal outcome has been reduced.

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But it is only slightly reduced because the central and most immediate issue on Brexit remains whether Johnson asks the leaders of the other 27 EU countries for yet another extension of the UK's membership of the bloc beyond October 31. On the one hand, he is bound by a recent UK law do that. On the other, he has staked his political future on delivering Brexit by Halloween "come what may".

There will be more twists and turns before the next EU leaders' summit in three weeks. But as things stand, Britain's membership simply lapses on October 31 unless all 28 leaders unanimously agree on an extension. That fact has not gone away.

What is the significance of the Government's ban on oil drilling?

At the UN on Monday, the Taoiseach announced that the Government intends to stop granting licences for oil exploration. He did so for environmental reasons. The announcement was welcomed on those grounds. It could be welcomed on other grounds too - a large oil find would have negative long-term implications for both the Irish economy and for Irish politics.

Consider the economics first. Taking basic commodities out of the ground involves much less creativity than coming up with better products and services. In the long run, it is the latter not the former that determines the wealth of nations.

Not only do big natural resource endowments tend to have transient effects - think of former coal-mining regions across Europe - they can actually work against longer-term prosperity, something known as the Dutch disease. This was named after the experience the Netherlands had during its gas boom of the 1960s, when the energy sector sucked up workers and other resources. This drove up wages and prices to the detriment of more creative sectors.

Commodity-focused economies also tend to be more volatile. Ireland's economic history has been volatile enough. Another source of volatility is not what anyone should wish for.

The political case against an oil find is also strong. Governments around the world rarely use windfalls wisely. Governments in this country have not been unusual in this respect. During the bubble of the last decade, property-related taxes flooded the Exchequer. The political class competed to see who could be the fastest in pumping them back out. Only minimal consideration was given to the risk that the windfall taxes would disappear, which is exactly what happened.

In recent years, the current Government has had not one but two unexpected windfalls: much increased revenues from companies' profits and much reduced interest payments on the national debt. Both windfalls have also been pumped straight back out the door.

The chances of an oil bonanza were always low. Now they are gone. That is no bad thing.

Are countries like Ireland at risk of becoming ungovernable?

Over the past week it has become clear that Spaniards will have their fourth general election in four years. Their return to the polls follows the failure of protracted coalition talks among the country's political parties. Those talks followed last April's election which resulted in a parliament in which no party came anywhere close to winning a majority.

This is relevant to Ireland for two reasons. First, Spain and Ireland have a lot of similarities. Both had civil wars in the early 20th century which left deep impressions on their politics and political allegiances and both have regions in which issues of constitutional status led to long periods of violence.

More recently, both had spectacular construction-focused, credit-fuelled booms which ended in tears.

The second reason Spain may have lessons for Ireland is that coalition formation in the next Dáil could easily follow the Spanish pattern of recent years. That could result in many months of coalition wrangling and/or a second general election if the parties fail to form a government. This risk is worth highlighting because it is under-discussed among political analysts and, if it were to materialise, its consequences would be serious.

Current opinion polls put Fine Gael and Fianna Fáil neck and neck, but with neither party having anything close to an overall majority.

After the last election, the 10 weeks it took to form a coalition smashed all previous records, a trend that is quite common across Europe as many parliaments become more fragmented.

There is every reason to believe, on the basis of polling trends over some time, that the next Dáil will be fragmented and it will be difficult and time-consuming to cobble together a coalition. This should make the Taoiseach think even harder than he is already likely to be thinking about a November election if another Brexit extension happens over the coming month.

Consider the following scenario: Another six-month Brexit extension is granted. A November election takes place, but the outcome is inconclusive and protracted coalition talks go into the new year and, as has happened in Spain, the parties simply cannot come to an agreement. All the while, a caretaker government is in place. That would have disadvantages, not least if big decisions need to be taken on Brexit.

For the moment, everything begins and ends with Brexit.

Irish Independent

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