Brexit: the Ultimate Denouement of Ireland’s Independence Project?

David Begg - Doctrine & Life, January 2019

Subscribe to Doctrine & Life

At time of writing, Britain’s political class is in turmoil. The Prime Minister, Theresa May, has been rejected by a significant minority of Conservative Party MPs. She remains in office, but she is not in power. The Eurosceptic fanatics of her party seem hell bent on imposing a radical experiment on their fellow citizens that is sure to be highly disruptive in the short term and is likely to be highly damaging, both politically and economically, over the long term.

It seems that there is little hope of parliament coalescing around any option – the deal negotiated by Mrs May, membership of the European Economic Area (EEA), or a second referendum – leaving the spectre of a no-deal Brexit as a real possibility. Opposition to the settlement negotiated with the EU has crystallised on what is called the ‘Irish backstop’. This is a provision designed to ensure that the Good Friday Agreement remains in place even if the UK leaves the European Union. The backstop would keep the United Kingdom in a customs union with the EU and align Northern Ireland with most EU single-market rules. The Democratic Unionist Party (DUP), on whom the government depends, regards the provisions of the backstop as a betrayal of the Union. As we mark the centenary of the 1918 election, which paved the way for Irish independence, the Irish question once again dominates Westminster politics.

It is possible that by the time this article is published, the creative skills of UK and EU civil servants will have found a way around the present imbroglio. But if so, it will be but a temporary respite, for the nature of Britain’s long-term relationship with Europe has yet to be agreed, and that is likely to take some years.

CHALLENGES

Whatever degree of separation of Britain from Europe is eventually agreed will pose challenges for Ireland. The near term economic impact has been quantified by the ESRI in its latest Quarterly Economic Commentary (Winter 2018). Gross Domestic Product (GDP) is expected to grow by 8.2 per cent in 2018 and by 4.2 per cent in 2019. However, the ESRI notes that the economy faces an unprecedented degree of uncertainty in 2019 because of Brexit and increased trade tensions internationally. A Brexit scenario, where WTO tariffs would apply, a no-deal Brexit in other words, could almost halve the growth outlook in 2019. A more benign scenario, in which the UK remains in the European Economic Area (EEA), would see growth reduced by 1 per cent.

In fairness, an economy which is experiencing the fastest rate of GDP growth in Europe might be said to be able to sustain a hit from Brexit. Some cooling of an economy growing this fast might even be of benefit. The problem, though, is that this growth is largely driven by foreign direct investment. The food-producing indigenous industries are very exposed. Britain is still the biggest export market for this sector.

But arguably the greater uncertainty for Ireland in the long term arises from its outlier status in Europe. With Britain’s departure, it will be the sole liberal market economy in Europe, and one of only three countries not part of the continental land mass. Moreover, the Irish economy cycles out of phase with that of the core continental states of the Eurozone because of its heavy export and investment dependence on Britain and the United States, and it has low levels of intra-industry Euro-area trade.

This misalignment means, for example, that Ireland’s interest rate requirements are different and unlikely ever to be a priority for the ECB. Whereas we are Britain’s fifth largest trading partner, we really don’t count, economically speaking at least, to a country like Germany. This is in contrast to other small open economies like Denmark and Finland who tend to be key sub-suppliers of German industry (David Begg, Ireland, Small Open Economies and European Integration: Lost in Transition, London: Palgrave Macmillan, 2016,  p. 8.).

BRITAIN LEAVING US

From the beginning, our involvement with Europe has been viewed through the prism of independence. It was a means of achieving equal status with Britain on the world stage. If truth be told, there is a certain smugness in our being on the inside while Britain is viewed as a renegade. Yet we joined the EEC with Britain and we always wanted Britain beside us on the journey toward European integration. The paradox of our situation is that Britain is now leaving us, we are not leaving Britain. In a strange way it is the ultimate denouement of the independence debate.

CRISES

Henceforth, we will have to engage with the European integration project in a different way. It is a deeply troubled Europe in which we have to find a new position. The EU is confronted by existential crises on many fronts apart altogether from Brexit. Anti-European sentiment is undermining the established political order in many countries. There are threats from terrorism, and immigration is causing huge problems, especially in Germany. Security is front and centre as an issue due to Russian aggression and American indifference. Countries like Hungary and Poland have embraced authoritarianism and are semi-detached from European values.

Despite these threats there is an overriding imperative, evident in the 2008 financial crisis, to go further towards integration. The Financial Times’ economic commentator, Wolfgang Munchau, believes that the Eurozone has been a malfunctioning monetary union since the beginning of the global financial crisis (‘The Eurozone Risks Sleepwalking into a Downturn’, The Financial Times, 16 December 2018). A currency union is unlikely to be sustainable on its own without a banking and fiscal union. Recently the President of the ECB, Mario Draghi, called on Europe to fight the rising tide of nationalism and meet the challenges of globalisation through deeper integration (Clair Jones, ‘Draghi Launches Defence of EU and Euro against Rising Nationalism, The Financial Times, 16 December 2018). Ireland, in the longer term, has to be part of that journey towards integration and to influence it. Perhaps for the first time, Britain’s departure will force us to seriously engage with Europe.

Actually, there is some evidence of serious strategic thinking in this regard (Paschal Donohoe, ‘Aligning Ourselves with “Our Friends in the North”’, The Sunday Business Post, 1 April 2018). Ireland has joined a group of small open northern European countries – Denmark, Finland, the Netherlands, Estonia, Lithuania, Latvia and Sweden – in creating the so called New Hanseatic League. (The original Hanseatic League was a commercial and defensive confederation of merchant guilds and market towns. It came to dominate Baltic maritime trade for three centuries from the late 1100s along the coasts of Northern Europe.) The purpose of this initiative is to balance the predominant influence of France and Germany in shaping the direction of European integration in the future. This, as might be expected, is somewhat resented by the larger countries. It was attacked last November by Bruno Le Maire, the French finance minister as being ‘dangerous for Europe’ (‘Euro-Zone Reform: Gang of Eight’, The Economist, December 8–14, 2018, p. 26). Nevertheless, it makes sense for Ireland to align itself with this group. The Nordic countries and the Netherlands are noted for being socially progressive, economically efficient and fiscally prudent.

THE INSANE CAN STILL HAPPEN

Ireland is now at a critical juncture because of Brexit. It is sobering to recall that in the 90 years or so since we gained our independence, Ireland has looked into the abyss of economic destruction four times. The first was in the 1930s when De Valera took over and moved policy from agricultural Laissez Faire to import substitution industrialisation. The second was in the 1950s when Lemass and Whitaker reversed course towards export-orientated industrialisation and ultimate membership of the EEC. The third time was in 1987 when a combination of the Single European Act, two currency devaluations and Social Partnership took the country off the rocks. Then we had the shock of the 2008 crisis.

This empirical evidence of boom and bust economic cycles strongly suggests that we have to migrate towards a more stable and sustainable model of development. Brexit could be a catalyst for Ireland to embark on a new direction with new partners in Europe.

There is likely to be considerable turbulence while Britain and Europe realign their relationship. A combination of a soft Brexit and a re-imagining of our engagement with Europe could put Ireland on a more sustainable path economically and socially in the form of a Nordic-style social market economy. But as of now the auguries are not so good. The Great War of 1914-1918, which we have recently commemorated, reminds us that the utterly insane can easily happen. Then, as now, the Irish question paralysed Westminster politics. How enduringly relevant is Churchill’s observation (in a speech in the House of Commons, 22 February 1922):

The whole map of Europe has been changed … But as the deluge subsides and the waters fall short we see the dreary steeples of Fermanagh and Tyrone emerging once again. The integrity of their quarrel is one of the few institutions that have been unaltered in the cataclysm which has swept the world.