Bank chief warns Ireland to prepare for no deal

EUROPEAN Central Bank (ECB) boss Mario Draghi has warned the Irish government to prepare for all possible Brexit outcomes, including a no-deal scenario.

Speaking at the Finance, Public Expenditure and Reform Committee in Dublin, the European financial boss said that Ireland is more exposed to direct trade effects of a hard Brexit than other EU countries because of its close trading relationship with the United Kingdom.

Mr Draghi added that the ECB will stand behind Ireland and back the country as Brexit takes effect.

“The impact on the Irish economy is both direct through trade and indirect through financial channels,” he said.

“We also see limited overall risks to the euro area financial stability. Without sufficient mitigating action, however, a cliff-edge Brexit could have an adverse impact in certain areas of centrally cleared derivatives markets.

“Sources of risk from outside the EU have grown since May. A stronger US dollar and heightened trade tensions triggered renewed stress in a number of emerging market economies.”

He said that ways of taking mitigating action against Brexit will only become clear once the ECB knows the outcome of a deal, but said he has advised businesses to take precautions.

“Things can be managed, however if the private sector were to decide there is going to be a cliff-edge or an unmanaged process, then the private sector behaviours could be a source of instability and that is something we have to monitor very closely.

“I think the most likely thing is gradual transition, which will allow all parties to negotiate in the best possible way.”

He went on to say that while the Irish economy is strong, there are risks of it overheating.

Mr Draghi said that Ireland’s recovery from the financial crisis has been “impressive” and the country’s economy has seen a “particularly strong expansion” in recent years.

“Ireland is now growing at the fastest pace of any euro area country,” he added.

“Unemployment has been falling too and now stands well below the euro area average.

“This is all the more impressive given the severe crisis Ireland went through and the legacies it is dealing with, including high private debt and arrears.”

Committee chairman John McGuinness, however, said that the devastation caused by the financial crash has been “absolutely horrific” and still continues today.

“It is wrong to say we are experiencing a recovery, certain parts are but vast amounts of people are still caught in courts and their homes are being taken from them,” he added.

“People are being threatened because of what happened in the past and the system is ignoring them.”