The election in Britain is but nine weeks away. With it comes renewed uncertainty over the country’s EU membership and, make no mistake, a multitude of tricky economic implications for Ireland.
Prime minister David Cameron has promised an in/out referendum by 2017 if the Tories regain power. Although the stance of Labour leader Ed Miliband is less clear, it is still not too great a leap to imagine a plebiscite if he wins.
Thus the “Brexit” question is under ever-increasing scrutiny in Dublin.
This matter is now to the fore of European policy debate within the Government. In London this week the Oireachtas committee on Europe held meetings on the question with assorted Westminster luminaries.
“Brexit” risk is also under quiet – but careful – examination in Irish firms and financial markets.
The discussion remains in the realm of the hypothetical. Yet there is no little apprehension here at the very notion of Britain, Ireland’s closest neighbour and most crucial economic partner, leaving the EU.
Essential ally
A British exit would deprive Dublin of an essential ally in the EU milieu, one which shares Ireland’s liberal, free-trade orientation in economics. It would remove the major counterweight to the pairing of Germany and France.
The departure of one of three major powers in the union would also raise questions over the sustainability of the European system itself.
Moreover, it would present dozens of practical difficulties in relations with Northern Ireland. As the Institute of European Affairs put it in 2012, “an external border of the EU would run through the island of Ireland”.
Then there is trade. It’s not so long ago that the totality of Irish commerce with Britain exceeded the totality of British trade with the “BRIC” group: Brazil, Russia, India and China. This is no longer the case, although Irish trade with Britain still exceeds its business with the whole of Africa. In sum, Ireland and Britain exchange more than €1 billion in goods and services every week.
According to the British-Irish Chamber of Commerce, British foreign direct investment in Ireland is worth €34 billion, and Irish investment in Britain is worth €47 billion.
“The UK accounts for 16 per cent of our total exports and 34 per cent of our imports. It is by far our largest two-way trading partner. Combined trade between the UK and Ireland supports over 400,000 jobs, half of them in Ireland,” says a paper by John McGrane of the chamber.
Highest level
The concern now is to avoid compromising such trade. No small thing, even if acute co-dependence is recognised at the highest level in both countries.
Research in 2014 for the Centre for Economic Performance, an arm of the London School of Economics, concludes quite clearly that one “Brexit” cost would be less EU trade due to tariff barriers. Various scenarios were set out. The most pessimistic centred on British GDP eroding by up to 9.5 per cent, “a loss of a similar size to that resulting from the global financial crisis of 2008/09”.
Ireland would hardly avoid the fallout no matter what special bilateral arrangements were cast to preserve Anglo-Irish commerce.
It should not be beyond the grasp of EU leaders to engineer some kind of a political solution vis-à-vis the powers of the union which would be sufficient for Cameron, Miliband or another Downing Street resident to carry a referendum to stay in the union.
Yet that, in turn, raises numerous prickly questions over the scope of any changes in respect of immigration, welfare rights, the single market and a clutch of other factors.
To the extent that Irish interests are not infringed, Dublin would assist London in the negotiation chamber. Yet there is high potential for costly political accidents.
One to watch.
