Study fails to see what a disaster ‘Irexit’ would be
Debating whether to leave the EU is healthy, but let’s not rush after the UK. Multilateral deals bring too many benefits for Ireland, writes Dan O’Brien
THE suggestion that Ireland should follow Britain out of the EU — “Irexit” — got quite some attention last week. Ray Bassett, a former diplomat, argued in a 42-page document published in London that Ireland should actively explore leaving the EU. His central contention is that the UK is more important to Ireland than the EU. In his judgement, choosing Britain over Europe is the best option for Ireland and its people.
He is right about considering every option but wrong in his conclusion.
Countries should always weigh up their options. In this regard Bassett is perfectly correct in raising the issue and exploring it. But when the costs and benefits of staying in the EU on the one hand, and throwing our lot in with London on the other, are all weighed up, there really isn’t much of a choice to be made.
Let’s start with the Ireland-Britain dimension. If Ireland declared that it was prioritising its relationship with the UK over its membership of the EU, as Bassett advocates, how would London react and what sort of bilateral relationship could be constructed?
Given that London doesn’t know what it wants from its most important trading partner — the EU — and has an enormous task ahead in dealing with Brexit, adding the complication of negotiating a new arrangement with Ireland would be yet another headache. Given how small Ireland is relative to the EU and the US, any Dublin-London deal would get a low priority and have to compete for attention with China, India and South America’s trading bloc, Mercosur. It would take years for an Ireland-UK deal to be done. The country would languish in a worstof-both-worlds limbo, out of the EU and with no new Ireland-UK arrangement.
Underpinning Bassett’s analysis is a curious view of how other countries see Ireland. He believes Britain is much better disposed towards this country than mainland European states, and seems to think everyone in continental Europe wakes up every day thinking about ways of doing Ireland down.
The truth is that power and interests determine how countries behave towards each other. For Ireland, dealing with Britain, France and Germany always poses challenges because they are more powerful, and when our interests clash we can come off badly. We may not like that, but that is how the world is.
If Ireland were to leave the EU and its legal framework (which lessens the role of raw power in inter-state relations, something that benefits small countries most), it would have to deal other countries on a bilateral basis and without being able to fall back on the EU’s Court of Justice. All serious analysts of international affairs recognise that small countries do better in multilateral settings, not least because they can form coalitions to protect their interests. It is surely significant that the word “multilateral” never appears in Bassett’s document.
If that is the context, exactly what kind of arrangement would Ireland seek to have with Britain outside the EU, and would Dublin aim for a single market and customs union covering both islands? Such details are not explored in any depth in Bassett’s paper and, to be blunt, the paper does not demonstate a clear understanding of the details, particularly with regards to trade issues (his CV does not specify any trade or EU roles during his diplomatic career).
This is evident when he discusses food. It is implicit in his report that Irish agricultural exports to the UK would be best protected if Ireland left the EU and did a bilateral deal with Britain. That, however, is very far from certain. If Britain decides to cut import taxes on cheaper agricultural produce from non-EU countries — the likes of Australia and Argentina — Irish farmers’ most important market will all but disappear. Britain’s decision on whether to go for a cheap food policy will not be influenced by Ireland one way or the other. Therefore, if Ireland left the EU and Britain went down the cheap food route, Irish agriculture would then have the worst of both worlds: no British market and no EU common agricultural policy payments (those CAP payments, incidentally, get one passing mention in the entire 42 pages).
If the Ireland-Britain case for Irexit is very weak, the wider economic case is non existent. Contrary to frequent comment, the UK is not Ireland’s biggest trading partner. It is now in third place, accounting for only 15pc of two-way trade in goods and services. The other 26 members of the EU account for more than twice as much.
It is also important to note that Ireland’s second biggest trading partner is now the US. The reason transatlantic trade has become so important for the Irish economy is because American companies are based here in large numbers. They are here not for the Irish market of 4.8 million people, but to gain access to the EU’s single market of 500 million people. For Ireland to leave the EU, even if it were the softest of Irexits, would involve new barriers to trade with Europe. That would not only reduce commerce with our most important trading partner by far (the EU), it would also negatively affect our second most important partner, the US. Moreover, if American companies come to believe that there is even a small chance of Ireland quitting the EU, they would reduce new investment. Some companies which are already here would look at other locations in Europe.
Despite companies moving out of Britain because of Brexit, Bassett doesn’t seem to see Irexit as a threat to investment, and that is despite Ireland’s dependence on foreign firms being much greater than Britain’s. Instead, he thinks that the biggest threat to foreign investment in Ireland is possible future changes to the corporation tax regime in Europe. Indeed, so great is the threat he believes that it is one of the reasons Ireland should leave the EU.
This is a failure of logic. Most foreign companies are here for the European market first. Low corporation tax is an added and secondary benefit. Outside the EU, Ireland could have zero rate of corporation tax but it would be of little benefit without full EU market access.
And then there is the euro. Leaving the EU would almost certainly involve changing currency. As Greece has shown in recent years, it is very hard to see the bottom of the abyss when a small country considers leaping from a currency union of which it is a part.
Bassett’s study acknowledges the risk that a new Irish currency could fall in value, thereby making repayment of euro-denominated debts massively more expensive, but blithely states: “Hopefully, a relaunched Irish currency would hold its value, especially in the longer term, to ensure that the country’s large foreign debt (a relic of the EU Bailout and its consequences) would not rise unduly”.
For somebody to advocate a course of action which could destroy peoples’ lives and businesses on the basis of a hope is extraordinary. As extraordinary is the claim that Ireland Inc’s foreign debts are all down to the bailout. Not only is that false in relation to the Government’s debts, it suggests a complete ignorance of the debts of companies and banks based in Ireland, which owe foreign creditors a scarcely conceivable €4.7 trillion.
With each passing day Brexit is proving to be a bad idea for Britain. Ireland is much more dependent on European markets for jobs and prosperity than our neighbour. It is also a small country that does not have the clout a nuclear armed, permanent member of the UN security has. Irexit would be a catastrophe for Ireland. If anything, Bassett’s report last week simply underscores that.