Wednesday 17 July 2019

Richard Curran: Our recovery will be hit hard now we have lost a great ally in Europe

Brussels will not want a deal with the UK to look good - making it worse still for us, says Richard Curran

'We took a bullet for the eurozone in 2008 to preserve the banking system and protect the single currency. It came with a net price tag of about €30bn. We may be asked to take another bullet to help preserve the European Union itself.' Photo: Bloomberg
'We took a bullet for the eurozone in 2008 to preserve the banking system and protect the single currency. It came with a net price tag of about €30bn. We may be asked to take another bullet to help preserve the European Union itself.' Photo: Bloomberg
Richard Curran

Richard Curran

The decision by the British public to leave the EU has come as a hammer blow to many Irish businesses right across the country. The reverberations were felt immediately in financial markets, while sterling fell sharply yesterday morning.

The full implications of the decision will take time to unfold but right away, the signs are not good. Firstly, businesses hate uncertainty. As the UK begins a two-year-long process of negotiating its exit from the EU, uncertainty will prevail for quite some time.

The biggest uncertainty is around the shape of the relationship our nearest neighbour will have with the EU. These will be difficult and complex negotiations involving London and Brussels.

We will want to see the UK get as many concessions as possible in terms of access to the single market, retention of the travel area and minimising disruption to our economic ties with the UK.

However, Brussels cannot make a deal with the UK look too good. It will only encourage others to want to leave.

Ireland's voice in these negotiations will be heard but we don't know the extent to which our European partners will listen to us.

Read more: It's 2021: Post Brexit Ireland looks like a very different place

Read more: Keeping Ireland's borders with Britain open a key priority, says Taoiseach

We took a bullet for the eurozone in 2008 to preserve the banking system and protect the single currency. It came with a net price tag of about €30bn. We may be asked to take another bullet to help preserve the European Union itself, if Brussels decides to drive a hard bargain with the UK in trade negotiations.

The more immediate problem for business is the investment freeze that is likely to occur in the UK. British businesses exporting to the EU will be very reluctant to expand or invest until they have clarity on the tariff regime that may emerge in two years' time after long, difficult EU negotiations. A British company selling into France or Ireland will be reluctant to invest until it has sight of precisely what lies ahead.

That investment freeze will hit economic growth in the UK. If it triggers a UK recession, they will buy less of what we sell to them.

In theory, the 'Leave' vote carries the benefit of allowing Ireland to win more inward foreign direct investment (FDI). This is investment from around the world that might otherwise go to the UK.

However, any such gains in financial services or other high-tech sectors will likely be in Dublin and might not offset the job losses that could arise around the country at exporting indigenous companies.

The consequences of Brexit will be hard felt north of the Border. The Northern Ireland Assembly has made much of its new 12.5pc Corporation Tax, due to take effect in two years' time.

It was supposed to make the North more attractive for US corporations looking for an English-speaking base within the EU. That has now been shot to pieces. The investors will not come. In fact, some companies who have arrived in recent years might re-consider their long-term future given their new EU base will no longer be in the EU.

Any economic downturn in the North will be detrimental to the southern border counties in particular.

Visitor numbers to Ireland from the UK will be badly affected by the fall in the value of sterling. The imposition of any kind of border, even occasional customs' checks, will make it more difficult for people commuting to work across the border in either direction.

These are all very real and tangible implications of the 'Leave' vote winning out.

But there are other issues which might play badly for Ireland.

The UK has been a very important ally in EU negotiations across a range of topics for many years. Ireland will lose that large ally at the negotiating table in Brussels.

Read more: Taoiseach says no need for Britain to start Brexit process 'until at least October'

Read more: Michael Martin: Cameron was 'reckless' in holding the Brexit referendum

We have had support from the fifth largest economy in the world many times when we pursued a policy position in Brussels. That supporter won't be there in the future.

The fall-out from the referendum will inevitably test the stability and strength of the EU itself. There is a genuine fear of a domino effect in which other countries seek to pull out.

The notion that membership is somehow irrevocable has been undermined by the UK's decision.

These are genuinely uncharted waters for Ireland in particular. The vote to leave has come at a time when the Irish economy was enjoying a benign economic recovery helped by three tail winds - low interest rates, a cheap euro and cheap oil.

We have been making hay while the sun was shining. Brexit represents some real storm clouds.

Our ability to push on beyond the shackles of our economic crisis of 2008 and the dark days of the troika, has been dealt a real blow.

Irish Independent

Today's news headlines, directly to your inbox every morning.

Don't Miss