WE MUST LOBBY FOR FRIENDLY RELATIONS

THE UK electorate voted by a narrow margin to leave the EU. The actual exit will not happen quickly. As Ireland has very strong economic and labour market links with the UK, and will remain in the EU, this exit is of great significance to us. Brexit does not mean that the UK will go into economic isolation or that the economic link between the UK and the EU will stop.

Flows of people, money, goods and services will continue between the two areas but a new set of rules governing this has to be agreed. The Irish Government will be supportive of a deal that facilitates easy interaction in goods, services, capital and people because of the UK’s economic significance to us.

The new deal will be negotiated by the EU as an entity. While Ireland will have an input into the EU negotiating position, the final deal will not necessarily reflect all of the Irish concerns. The details of the new economic rules are unknown and uncertain. The EU may adopt a tough and unfriendly stance in negotiations or may be willing to establish as liberal an economic relationship as possible with minimal disruption to economic interaction.

The Irish Government should be immediately lobbying the other member states to support a friendly, liberal new economic relationship. The new rules will determine much of the long-term economic impact of Brexit on Ireland. New trade regulations and barriers such as border controls or documentation requirements will increase costs for both importers and exporters compared to the current situation. This will be a particular problem for small Irish exporters.

Economic analysis and research indicate that Brexit will have a negative economic impact on the global economy, the UK economy and, with the one notable exception of inward direct investment, the Irish economy. There could also be particular political and social negatives for Ireland because of the relationship with Northern Ireland and the threat to the long-standing common labour market between Ireland and the UK. The scale of the negative economic effect will depend on the speed, certainty and content of the economic and trade deal between the UK and the EU.

Brexit is generating uncertainty among businesses, which results in a delaying or cancelling of investment and is causing problems in financial and foreign-exchange markets. This uncertainty could be reduced, but not eliminated, by the EU and UK announcing their intention, in as far as is possible, to achieve a new economic relationship which minimises negative impact and that the new deal will be finalised quickly. However, a new deal will not be easy because the Brexit supporters seem to want only three of the four economic freedoms of the single market – goods, services and capital – while rejecting the fourth, labour.

Very little campaign debate took place on the likely nature of a postexit relationship. Indeed, there was not a common position within the Brexit campaign on the desirable replacement of the existing relationship. Nor is there a published EU position on what it wants after Brexit. There is also the added complication that the majority of the UK Commons are against Brexit and that presumably the Commons would have to approve the new deal. Elements of a new deal are likely to disappoint many who would have voted Leave. Brexit was a vote to leave without any agreed post-EU position.

Brexit has caused a large decline in sterling which is likely to persist for some time. A much lower sterling reduces the competitiveness of exports from Ireland to the UK and improves the competitiveness of imports from the UK. Consumers may benefit from the latter but Irish producers competing on the domestic market will lose out.

A lower value of sterling also reduces the attractiveness of Ireland for UK tourists. Fluctuations in the exchange rate with sterling are not a new phenomenon for the Irish economy but the Brexit-related decline is large and likely to be longlasting. The UK labour market will be less available to EU workers in the new relationship. This could result in Irish workers remaining unemployed in Ireland compared to emigrating to the UK, as would have happened previously. A larger number of EU workers are likely to come to Ireland because of the changed UK situation.

ALIKELY positive for the Irish economy is the reduction in the attractiveness of the UK as a centre for servicing the EU single market for both inward foreign investment and domestic UK enterprises, because of the likely reduction in ease of access between the EU and the UK. Ireland stands willing and able to give a new English-speaking home to these projects. On the negative side, the UK will have more freedom to improve its tax attractiveness for these projects. Ireland’s increased attractiveness as an English-speaking, business-friendly location, relative to a UK which is outside the EU, has substantial economic potential.

Overall, Brexit will have a negative effect on Irish economic activity. It remains to be seen how the UK government might use its additional scope for policy-making to support economic growth in the medium to longer terms, and what trade deal will emerge between the UK and EU. The details of this will have great economic consequences for Ireland.