Ireland’s economic priorities as the UK notify its intention to exit the EU : Tony Foley DCU

Brexit: the Economic Issues for Ireland as Negotiations Begin

At last the formal Brexit process has been initiated, nine months after the vote to leave in June 2016, and after Ireland is already suffering Brexit related negative economic effects from uncertainty and the decline in Sterling. This is the start of an exit and negotiation process which may last several years and could terminate in either an amicable agreed new free trade oriented economic relationship or a discordant termination of negotiations without any new agreement on relationships and without a special deal for Ireland/NI/UK links. The latter would mean the UK leaves and becomes simply another country, like the USA or Russia, in its economic and trade relationship with the EU and therefore with Ireland.

Ireland’s economic interest is best served by a new UK/EU economic relationship which is as close as possible to the present one. Our interests are not served by a “tough” deal or by failure of the negotiations and the ” unilateral” departure of the UK. The EU may go for a tough approach to show that leaving the EU comes with a heavy penalty to discourage other member countries from considering the same path, even at an economic cost to itself. Hopefully, adult maturity and genuine goodwill will prevail and the result will be the best possible mutually beneficial economic and trade relationship.

The Government has identified, and has been lobbying for, the Irish economic and other priorities in the negotiation process and naturally they reflect our own self-interest. These priorities include Northern Ireland and the peace process, the economy and international trade and maintenance of the common travel area with the UK. As noted above this is effectively a ”keep things as they are” requirement which may not be shared by many other EU members. For example we want to avoid the revival of a hard border on the island of Ireland and keep things as if the UK was still in the EU.

On trade and the economy the Government wants to maintain close trade between the UK and EU/Ireland and minimise the regulatory burden for Irish exports transiting through the UK to EU markets. A common travel area has existed between Ireland and the UK since 1922 whereby citizens of each country had work and services rights in the other. We want the new EU/UK deal to maintain the Ireland/UK common travel area essentially as if the UK was still a member of the EU and regardless of the UK very definitely intending to end the free labour mobility rights of the rest of the EU population into the UK.

The British and EU are sympathetic on the maintenance of the UK/Ireland common travel area. However, current sympathy for, and aspirations to respect, the special and significant links between Ireland and the UK may become diluted as negotiations and bargaining proceed. Current sympathy does not ensure the desired end result. The sympathy of the EU for Irish taxpayers carrying the burden of the bank bailout was not converted into a cheque.

The next major step in the process is the publication in the next couple of days of the European Council’s draft guidelines for the negotiations which will form the mandate for the EU negotiators. These may be tough, hard and unfriendly or conciliatory and supportive of a continuing close economic relationship. The EU 27 then has to agree the negotiating position. This will take some weeks as the different demands of the 27 members are formulated into a consensus set of guidelines. It will be of interest to see the prominence of the Irish priority concerns in the mandate. A European Council meeting has been set up for April 29 to agree the negotiation guidelines.

The UK/EU negotiators then have to agree the agenda or sequence of topics. The EU side has put the UK’S Brexit financial bill as the first item, followed by the rights of citizens in each others areas and border matters including Northern Ireland which reflects one of our priorities. There are two deals to be negotiated, the “Exit” deal (or the divorce) and the new or Future Relationship deal. There may also be transitional arrangements.

The negative economic impact on Ireland of a hard Brexit will be substantial. Relative to no Brexit Irish GDP will be lower by 3.5% after five years. Unemployment will be 1% point higher and there will be a loss of 40k jobs. Exports to the UK, based on assumptions about the new UK tariff rates, will be down by about one third with a particularly negative effect on food exports. However, these estimates assume no policy reaction such as measures to improve competitiveness for which we may seek EU funding. In addition, there are economic advantages from Brexit such as additional foreign investment.

The negotiations will begin soon. The Government has identified our economic concerns and priorities and has been lobbying for these. There are no guarantees that the EU negotiating position and the final package will incorporate these priorities despite sympathy for our position. It is in Ireland’s best interest for the UK and the EU to continue to have a good free trade oriented new economic relationship. Unfortunately, it will take a long time to finalise the new economic relationship and uncertainty will continue.

Anthony Foley

Senior Lecturer in Economics

Dublin City University Business School

March 2017