A British exit from the EU could weaken confidence in the Northern peace process and increase political risk around Europe, credit rating agency Fitch has warned.

In a report on Monday in which it said a Brexit would weigh on the economies of other member states, Fitch ranked Ireland among the countries most exposed to reduction of exports to Britain from the EU.

Although Fitch argued that the economic impact of a Brexit would be lower for the EU than for the UK, it said the impact on the union would still be palpable.

“Brexit would represent a symbolic moving apart of the UK and Ireland that could weaken confidence in the peace process in Northern Ireland,” said Fitch analysts Ed Parker and Douglas Renwick.

“Depending on the UK’s future trade arrangement with the EU, it might also lead to a reinstatement of a physical border and security posts between the Republic of Ireland and Northern Ireland, which were dismantled in the 1998 Good Friday Agreement. Such a development would impair cross-border relations and trade.”

Exports

Fitch said the extent of lost EU exports would depend on the depth of trade relations with the UK and the extent of sterling’s losses post-Brexit, adding that a decline in the British currency would boost competitiveness and reduce purchasing power for imports from the euro zone.

The most exposed countries were: Ireland, Malta, Belgium, the Netherlands, Cyprus and Luxembourg. Exports of goods and services to the UK from each of these countries were worth at least 8 per cent of GDP, Fitch said ,.

“The concentration of sales of different EU companies and industries to the UK would likely mean some significant fallout at local level.

“For example, the Uk for 49 per cent of Irish agri-food exports, 46 per cent of agri-food imports and 90 per cent of energency imports. Countries with more flexible labour markets woudl be better placed to adjust to such shocks.”

At the same time, Fitch ranked Ireland among the member states which might gain from looser trade arrangements by replacing UK exports in other EU markets.

“However, to the extent that EU countries currently choose certain UK goods and services in preference those of other EU countries, this would imply higher prices and shifting to less attractive imports, whcih would adversely affect the welfare of consumers and some businesses.”

Banking

Fitch also ranked Ireland among the EU countries whose banking sectors had “sizeable” links to the UK banking system.

The agency also noted that a Brexit would create a precedent for countries leaving the EU.

“It could boost anti-EU or other populist political parties, and make EU leaders more reluctant to implement unpopular policies with long-term economic benefits,” it said.

“Negotiating the terms of the UK’s exit could exhaust the EU’s time and energy and open up new fronts of disagreement. Brexit could shift the centre of gravity of the EU, making it more dominated by the eurozone core, poorer, more protectionist and less economically liberal.

“If the UK were to thrive outside of the EU, it might encourage other countries to follow suit. Brexit could precipitate Scotland leaving the UK, which might intensify secessionist pressures in other parts of the EU, such as Catalonia in Spain.”

Debt

Fitch went on to say fears of other countries leaving the EU could widen bond spreads for “peripheral” countries, potentially increasing the average cost of debt and making it more challenging to reduce government debt/GDP ratios.

“Fitch believes that it is highly unlikely that a country would choose to leave the euro zone outside of a crisis situation owing tothe much higher economic cost of doing so relative to leaving the EU.

“Nevertheless, euro zone periphery spreads might rise if marketts were to judge a lower degree of suppport from the core would be forthcoming in the future, and/pr re-assess the likelihood of the euro zone implementing reforms to deepen the foundations of the single currency over the medium term.”