Brexit report sees ‘severe’ hit to Irish wages and jobs as best-case scenario

Even the most benign outcome for Ireland, in which the British strike the softest of Brexit terms with the EU, would be bad news for growth, jobs, and the national finances in Ireland, a new report has found.

The Economic and Social Research Institute — the ESRI — and the Department of Finance say that “the potential long-term impact of Brexit on Ireland is severe”. 

This conclusion is based on their joint economic simulation of the 10 years after the UK completes its divorce from the union.

Export and import industries, such as farming and food, are not the only ones that will suffer from Brexit, and the spillover for Irish government finances will be considerable, too.

Ireland is in the Brexit firing line, because so many jobs rely on the estimated €60bn of trade in exports and imports, of goods and services, that crosses the Irish Sea each year.

With Britain out, any disruption to trade, from the imposition of new tariffs, would likely cost jobs here.

Many analysts believe that Britain will be out of Europe in 2019, after Britain and the EU complete the maximum two years of divorce talks allowed under Article 50 of the Lisbon Treaty.

But it is not known what sort of deal Britain will strike in the exit talks.

A hard Brexit, and the imposition of tough tariffs at the EU-UK borders, are the worst possible outcomes for Ireland — north and south — disrupting key indigenous industries, such as beef and dairy, as well as posing huge political challenges for the hard-won Good Friday Agreement.

But the joint research, which is based on the economic model run by the National Institute of Economic and Social Research, a major UK think tank, concludes that the softest of divorce settlements would cost Ireland dear.

This soft Brexit outcome is the so-called Norway option, because it assumes that Britain, like Norway, will stay in the European Economic Area and in the customs union.

Nonetheless, even this ‘best of a bad job’ outcome would still push wage levels here lower, by 2.2%, and drive Irish unemployment higher, by a significant 1.2 percentage point, than if Britain had remained in the EU, according to the research.

The tough path that the British prime minister, Theresa May, first signalled at her Tory Party conference, in Birmingham, early last month — when she insisted on full control over migration — would be worse.

In this scenario, the Irish jobless rate would be almost two percentage points higher, and the national debt 10 percentage points higher, than than they should be after 10 years.

Under this so-called World Trade Organisation option and its regime of high tariffs, wages here would be 3.6% lower.

Under all scenarios, the value of sterling, the research assumes, would be permanently weaker, and would be unlikely to rise back to 76 pence against the euro, its rate on the eve of the Brexit vote in June.

Despite the much stronger euro, consumer prices here are expected to be only slightly lower than if there had been no Brexit, the research finds.

One of the authors of the research, ESRI professor, Edgar Morgenroth, last week told the Irish Examiner the Government should “bypass” London and seek allies in Europe, because he said the British were intent on pushing for a hard Brexit, regardless of the adverse effects to Irish economic and political interests.

Mr Morgenroth has warned that the food industry in Ireland could be damaged, if the British were to strike a unilateral or bilateral deal with a food producer, such as Brazil, and have zero tariffs on its food imports.

Mr. Morgenroth also believes that there will be little or no delay to Brexit, and that the UK will still be out of the union by 2019, because he says there is no will among EU member states to extend the talks.

Sterling last week rallied slightly against the euro, after the English high court ruled that the UK parliament must have a say before the UK triggers Article 50 — which would mark the beginning of the formal, two-year period of separation talks between London and the Commission in Brussels.

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