Get­ting our house in or­der

Belfast Telegraph - Business Telegraph - - Front Page -

North­ern Ire­land must put its own econ­omy first as Brexit in­ten­si­fies

This month marks two years since the Brexit vote and, in the in­ter­ven­ing pe­riod, we have be­come fix­ated with the re­la­tion­ship be­tween the UK and the EU. How­ever, in many re­spects what is go­ing on within the EU it­self is po­ten­tially even more sig­nif­i­cant, and the next two years could be defin­ing for the bloc.

Our fix­a­tion with po­ten­tial ex­its from the Eu/eu­ro­zone be­gan with Greece (Grexit) around 2010 and con­tin­ued with Ire­land, Por­tu­gal and even Spain (Spexit).

The Ital­ian pres­i­dent of the Euro­pean Cen­tral Bank (ECB), Mario Draghi, sought to avert such crises with his “what­ever it takes” speech, ef­fec­tively pro­vid­ing a ver­bal guar­an­tee that acted to set­tle the mar­kets.

Six years on from Draghi’s speech, the spot­light has been very much on Brexit and the state of the UK econ­omy, rather than the state of the Eu­ro­zone. In­deed, since the ref­er­en­dum re­sult, the Eu­ro­zone econ­omy has been in some­thing of a pur­ple patch, put­ting the UK econ­omy in the shade, and fears of Brexit-style anti-eu sen­ti­ment spread­ing to France and the Nether­lands have failed to ma­te­ri­alise.

How­ever, in re­cent weeks some of the fun­da­men­tal prob­lems with the Eu­ro­zone have come back to the sur­face. Draghi’s guar­an­tee in 2012 pro­vided time and space to avert an im­me­di­ate cri­sis, but the time wasn’t used to im­ple­ment much-needed re­forms within the bloc. When Grexit was on the agenda, some of the po­ten­tial re­forms be­ing dis­cussed in­cluded closer in­ter­ac­tion, a bank­ing union and greater fis­cal trans­fers be­tween mem­ber states. But none of this has ac­tu­ally been im­ple­mented.

To­day, whilst the past two years have fo­cused on the EU’S prob­lems on its West­ern flank (i.e. the UK), the East­ern flank is ar­guably cur­rently its big­gest con­cern. Euroscep­ti­cism has be­come a ma­jor is­sue in places like Hun­gary and Poland.

In­deed, Hun­gary’s Prime Min­is­ter Vik­tor Or­ban re­cently said that Brus­sels is the new Moscow — in­fer­ring that it is a dic­ta­tor­ship against which his coun­try has to bat­tle. Mean­while, Poland risks los­ing its EU vot­ing rights in a dis­pute over is­sues with in­de­pen­dence (or lack of ) in its ju­di­ciary. The EU is also threat­en­ing to link bud­get pay­ments to coun­tries’ re­spect for the rule of law, which is caus­ing ten­sions in var­i­ous mem­ber states.

All of this puts the EU as we know it in some doubt, par­tic­u­larly at a time when coun­tries like Ger­many have be­come more in­ward look­ing and there­fore less likely to have an ap­petite for the kind of long-needed re­forms, in­clud­ing closer in­te­gra­tion, that France’s Pres­i­dent Macron has re­cently been ad­vo­cat­ing. What is hap­pen­ing within Italy is also cur­rently a con­sid­er­able worry.

Italy has been in the crosshairs of fi­nan­cial mar­ket con­cerns of late due to po­lit­i­cal in­sta­bil­ity re­sult­ing from the prospect of anti-europe, na­tion­al­ist par­ties turn­ing an elec­tion into a de-facto ref­er­en­dum on Italy’s mem­ber­ship of the euro.

This is fuel on the fire of ever-grow­ing pop­ulism in Europe that will pro­vide an ever-greater ex­is­ten­tial threat to the EU project. And it should be noted that Italy is not Greece; it is a much larger beast as the Eu­ro­zone’s third largest econ­omy.

We know the havoc that Greece’s prob­lems wreaked in the Eu­ro­zone — and it is a min­now com­pared to Italy. Late last week, po­lit­i­cal in­sta­bil­ity trans­ferred from Italy to Spain, with the Span­ish Prime Min­is­ter Mar­i­ano Ra­joy be­ing forced out of of­fice in a mo­tion of no con­fi­dence, fur­ther adding to un­cer­tainty within the EU.

This month’s EU Coun­cil meet­ing is there­fore hugely sig­nif­i­cant, and will look at some of the most press­ing is­sues in­clud­ing the draft bud­get and needed re­forms, as well as im­mi­gra­tion and de­fence. One of the pro­pos­als is to re­form aid ar­range­ments, there­fore mov­ing around €30bn from east­ern Euro­pean coun­tries, no­tably Poland and Hun­gary, to Spain, Greece and Italy. This is cer­tainly a very con­tentious is­sue.

So, whilst Brexit is no doubt a sig­nif­i­cant schism that will present chal­lenges to the Europe, it is per­haps akin to hav­ing a limb re­moved com­pared to the more fun­da­men­tal prob­lems at the heart of the bloc. In­deed, Italy was a found­ing mem­ber of the EU which was cre­ated as the EEC through the Treaty of Rome 1957. So, the fo­cus in Europe will in­creas­ingly move to th­ese is­sues and it will be ex­tremely in­ter­est­ing to see what the next two years holds for the EU when re­forms are badly-needed and the key play­ers are in­creas­ingly less well po­si­tioned to make them.

From a North­ern Ire­land-per­spec­tive this means that we have a po­lit­i­cal vac­uum at home, po­lit­i­cal dis­or­der in the wider UK, and the prospect of an in­creas­ingly frag­mented EU on our doorstep.

When coun­tries like Amer­ica, Ger­many and Italy are in­creas­ingly put­ting their own in­ter­est firsts, it is in­creas­ingly clear that North­ern Ire­land needs to get its own house in or­der and start put­ting its econ­omy and in­ter­ests first.

In next week’s Econ­omy Watch, we hear from Danske Bank chief econ­o­mist Conor Lambe

Some fun­da­men­tal Eu­ro­zone prob­lems have come back to the sur­face in re­cent weeks

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