Brendan Keenan: Time to stop blaming Foster and boost Brexit co-operation
JUST now, I feel a bit like the guinea-pig I recently wrote about in that experiment, faced with 19 people denying the blindingly obvious and wondering if he can possibly be right. I am talking, of course, about the Arlene Foster question.
Everyone in Dublin, including people whose opinions I respect, seems to think Mrs Foster has behaved badly on the Brexit question and the Irish Government has been let down. I take exactly the opposite view.
In normal circumstances, it would not matter much what the Irish Government, Mrs Foster, Sinn Féin or the Democratic Unionist Party say about each other. For more than 10 years, what they actually do has been commendably positive, however, circumstances now are anything but normal. Brexit, they call it. Just how abnormal Brexit is was made clear in last week’s analysis of its impact prepared by the Economic and Social Research Institute (ESRI) in conjunction with the Department of Finance.
The headlines concentrated on the worst-case scenario. This is the “hard” Brexit, where all special arrangements between the EU and UK come to an end and the two entities trade under the World Trade Organisation rules that are available to all WTO member states.
In that situation, after five years the output of the Irish economy would be 3.5pc less than if Britain had stayed in the EU. Employment would be almost 2pc lower, and there would be further reductions over the next five years. These are big numbers: 2pc of the present employment level is 10,000 people.
Another finding is that the bulk of the impact occurs in the first five years. This would be akin to the 2008 crash, where the initial shock was followed by a long period of poor performance that ended only in the last couple of years.
Although the economy is now reckoned to be close to full capacity, output and income are not what they would have been had the crash not happened. In that sense, the damage is permanent, although after a time it becomes invisible.
This is the kind of comparison used in the study. If it were just a matter of growth, after a while we might not notice. Should the free travel arrangements with the UK come to an end though, and should there be identity checks at the Border, we would notice it forever. As many commentators and politicians have begun to say, once they got over the initial sense of disbelief, this kind of Brexit seems the most probable outcome.
Despite lots of evidence that it is a waste of time, I still tend to study what politicians say in the hope of divining something, at least, of their intentions. Theresa May says she wants the best deal for Britain and she wants to keep access to the EU market. Assuming this means anything, it raises the question of what she would give up to achieve that access in terms of movement of people.
We have estimates of what Britain would give up if it takes itself out of the single market. The ESRI used work from its UK equivalent, the National Institute of Economic and Social Research (NIESR), based on the assumption that, under soft, middle and hard Brexits, trade between the UK and the EU is reduced by 23pc, 30pc and 50pc respectively. Britain’s GDP would be down by between 1.8pc and 3.2pc and the level of wages would be reduced by 2.7-5.5pc (again compared with what would have been the case without Brexit).
It might not do to interpret two different analyses too rigidly. Nevertheless, they suggest that a hard Brexit would be more damaging to the UK than to the Republic, but softer versions – roughly the Norwegian and Swiss models – could mean a bigger loss to Ireland.
This makes a kind of sense. Complete separation leaves the UK struggling in the morass of WTO deals while Ireland still has access to the EU market and trade arrangements. If Ryanair’s Michael O’Leary ever hit a nail on the head, it was that Mrs May was “faffing about”, talking about trade deals with India.
Another estimate of Irish interest is that FDI inflows into the UK are expected to be down by 10pc, 17pc and 24pc respectively. It is of interest to the Republic as an opportunity, and of interest to the North in the Chinese sense of trouble.
The surprising degree of hostility towards Mrs Foster was based on her attack on Dublin for trying to poach foreign investment from the North, and declining the invitation to attend the Taoiseach’s civic dialogue. The only point about the former is whether it is true, while the latter is like blaming the turkey for not turning up to Christmas lunch.
Since her speech, a burst of Trumpeting has put more pressure on Ireland’s FDI strategy, to add to OECD anti-avoidance measures and EU tax calculation proposals. The temptation to get the most from that decline in FDI to the UK, even at the North’s expense, must be well nigh irresistible.
Yet everyone needs to think very carefully. Nothing could be further from flashy FDI than milk but have a look at what a hard Brexit might do to what is probably the biggest all-island market.
Almost 600 million litres of raw milk crossed the border from the North last year. Imports of drinking milk were valued at €175 million.
A tariff border for milk could see the closure of processing facilities in one jurisdiction, the building of previously unnecessary ones in the other and increased costs all round. Similar analyses, perhaps on a smaller scale, could be made for a whole range of intermediate products, services, networks and joint ventures.
Much of this is no doubt included in the ESRI’s analysis by its new economic model COSMO, but the social, political and psychological effects of such a cleavage on the island cannot easily be captured, although their effects can easily be imagined.
They include the reversal of much of what has been achieved in the past 20 years. There is more to it than the ending of violence in the North, even if that was the main achievement. The chance to forge the kind of relationships between the two parts of the island that one finds among other rich European states with common borders has been wasted.
Now, as with so much else, wasted opportunities are turning into danger. It is deeply distressing that the most noticeable response so far has been an outbreak of name-calling. It really is time to stop faffing about.
Just how abnormal the situation is was made clear in last week’s analysis from the ESRI and Department of Finance.
There is, however, the clink of pennies dropping. The Taoiseach and first minister met in Dublin, showing Mrs Foster is willing to talk business – not faff about. They met as part of the cross-Border council. Its communiqué after the July meeting set out an excellent list of what must be done.
A beefed-up council is also the best body to get it done: the objective being an all-island model whose acceptance will be the basis of Ireland’s final Brexit vote in the councils of the EU.