Hard border may be avoided — but a hard Brexit has damaging downsides
For all Varadkar’s best efforts to be a good neighbour, we are still facing the second worst of the four possible outcomes, writes Colm McCarthy
IF the visible version of the latest UK withdrawal plan comes to pass, it avoids a hard border and preserves the Good Friday Agreement — but there is a downside.
Great Britain would, after a transition period, exit fully the EU’s single market and customs union, leaving Northern Ireland in a special position. If the concept can be made operational, Northern Ireland would enjoy access to both the EU and UK markets — but there would be a hard border between the EU-27 and Great Britain, harder than would have arisen in the thrice-rejected deal negotiated by Theresa May’s administration.
Great Britain’s ultimate destination becomes that of a third country with no more than a Canada-style free trade agreement with the EU. This avoids the chaos of a no-deal crash-out, but it is not a soft Brexit and is not the outcome that any Irish government would have desired.
The Central Bank released a report last Friday warning that a no-deal crash-out by the UK at the end of this month would see an early shock to Irish economic performance. Economic activity next year would be 3.5pc lower than otherwise and there would be a rise in both unemployment and consumer prices.
Last Tuesday’s Budget envisaged a relapse into fiscal deficit in this scenario and extra borrowing. The efforts by the Government to avert no deal are perfectly understandable, aside entirely from the risk to the peace settlement in Northern Ireland. But the form of hard Brexit now apparently in prospect mitigates only the negative impact on North-South trade, dwarfed by the potential damage to trade with Great Britain and the disruption to Continental surface transport routes.
There have all along been four possible outcomes — with no-deal crash-out the most damaging to the Irish economy.
Hard Brexit with a deal is the next worst, avoiding immediate chaos but erecting serious tariff and non-tariff barriers to Ireland’s trade with its nearest neighbour.
There are soft forms of Brexit, with the UK staying in close connection to both single market and customs union, ruled out early in Mrs May’s premiership and with no surviving traction in UK politics, even though Leave campaigners promised ‘frictionless’ trade with the EU if they won.
Finally, it remains open to the UK to forget the whole thing and stay in the EU, possibly through a second referendum. The operative date of the UK’s resignation has been deferred and there is a unilateral right to revoke until that date is reached.
Of these four possible outcomes, the second worst for the Irish economy — a hard Brexit — is the preference of the Johnson government and the likely outcome if a withdrawal agreement can be salvaged following the Taoiseach’s meeting with Johnson last Thursday.
All that is being negotiated is the withdrawal agreement, which will hopefully provide an acceptable solution for the Northern Ireland border, but which will not define the longterm trading relationship of Great Britain with Ireland and the rest of Europe.
There will be a no-change transition period — possibly around two years, and the longer the better — but Britain eventually becomes a third country and, on current British intentions, one committed to tariff and non-tariff barriers.
In pursuit of the Global Britain agenda, the declared destination is full exit, except for NI, from the EU’s common commercial policy and the negotiation of new bilateral trade deals around the world. One of these will be with the EU. In addition, and in order to escape freedom of movement, the British government intends to quit the regulatory union called the single market, which entails abandonment of European product standards and hence non-tariff barriers to trade.
Securing a British longterm trade deal with the EU will be lengthy, complex and bitter, the more so given the poisoned atmosphere which UK politicians have gratuitously created through the shambolic conduct of negotiations to date.
It is the opinion of trade experts around the world, including the British government’s own advisers, that the UK will gain through new trade deals in distant parts a small fraction of what will be lost in any feasible deal on departing the EU.
The best trade deal with Europe open to Britain is EU membership and the UK economy will be smaller as a result of Brexit. Of the four possible outcomes to Brexit, this would also be the best for Ireland and the Irish government would be delighted if the Brits simply called the whole thing off.
On Sunday, May 29, 2016 — just a few weeks before the referendum — Taoiseach Enda Kenny was pictured with Remain supporters at London GAA headquarters in Ruislip for the Connacht championship game. Mayo won by 13 points and were unfortunate to lose that year’s final to the Dubs after a replay, making it a bad year for Enda.
His first disappointment was the Leave victory — he made it as clear as diplomatically he could that Brexit was not in Ireland’s interests.
His successor Leo Varadkar has already attracted apoplectic denunciations from the London, but not the Irish, editions of the tabloids, and has steered clear of any appearance of interfering in the UK political debate. His reasons for seeking to avoid the worst possible outcome — a crash-out Brexit — are obvious, as is his promotion of the second-worst, Johnson’s hard Brexit, provided the latter is amended to avoid the threat to the Good Friday Agreement.
He must accept that a soft Brexit, involving the acceptance of free movement to stay in the single market and the cancellation of Global Britain, is just not going to happen, while cancellation of Brexit would require a second referendum — a victory for the Liberal Democrats in a general election or some other unlikely development which would not benefit from Irish encouragement.
But relief if a hard border is avoided should not disguise the potential damage from a hard Brexit.
The Oxford economics professor Simon Wren-Lewis has estimated that over 90pc of economists at UK universities believe that the British economy will be worse off because of Brexit.
This may surprise you since the TV stations invariably locate a Brexiteer economics expert to voice a more optimistic view.
The explanation is that there are a lot of universities in the UK, over 100, and each has at least one economics professor. If TV stations confuse equal airtime with public information, they can always find a professor to dissent on any issue — there are science professors who deny the connection of climate change to the combustion of fossil fuels, and cable channels in the US have made some of them famous.
Once the withdrawal agreement is secured, the EU will commence the negotiation of the long-term trade agreement with the UK as a freshly minted third country. Ireland will have more at stake in this process, which some experts think could drag on for five years or longer, than any other EU member, even with the land border issue resolved.
The withdrawal agreement is the beginning of a hard slog for the Irish representatives in Brussels.
The United Kingdom is embarked on an economically self-destructive course. The Irish Government’s version of the good neighbour policy last week was discreet help with damage limitation.
‘Varadkar must accept that a soft Brexit is just not going to happen’