Ireland’s Brexit blues

Time to adapt or die in the post-Brexit world order

Ireland’s response to Brexit will define our economic landscape for decades to come. Our much-maligned civil servants gave Ireland the best possible start the day after the referendum result, when Taoiseach Enda Kenny, at his most statesmanlike, reassured his people that his government had this under control and had a plan for Brexit.

Kenny even showed us the plan, and it looked like a good plan to me. Our civil servants get a lot of stick. It’s only right we praise them when they do a good job. Again, in fairness to them, Britain had not settled on its mode of exit before last week, but the range of possible negotiating endpoints was becoming obvious some weeks ago.

Despite such a good start, Ireland’s policy makers have yet to articulate their approach to a post-Brexit world beyond grabbing jobs from the City of London.

Those jobs don’t seem to be coming our way, though. That may be no bad thing.

For example, last week HSBC, a bank that helped terrorists and drug cartels launder money, and massively evaded taxes in Switzerland and Mexico, that was found to be engaged in the manipulation of the key Libor interest rate, in Eurobor manipulation, in mis-selling mortgages to Fannie Mae and Freddie Mac in the US, and other offences, has decided to send 1,000 jobs to France, and not Dublin.

Bonne chance, mes amis.

It is hard to underestimate the impact of Brexit on the Irish economy. Last week, the Department of Finance, using an ESRI model, estimated we in Ireland might see a 30 per cent drop in exports to Britain, a rise in unemployment, deepening regional inequality, and 40,000 fewer people in work after ten years. Not good.

We should remember Britain is in a long-term post-imperial decline in relative terms. Britain accounted for 9.1 per cent of the world’s economy in 1870. In 1960, it accounted for 6.5 per cent of the world’s economy. Now it accounts for 2 per cent of the world’s economy, and Brexit will accelerate this.

Ironically, Britain will have its cake and eat it, but it will be a much smaller cake.

Britain is no longer our largest trading partner — in fact, it is one of the smaller ones – but we ignore the changing nature of our relationship with Britain at our peril. In two speeches in London and Davos, British prime minister Theresa May laid out her plans for a hard Brexit, where Britain loses access to the single market and its customs union, thus ensuring tariffs, trade barriers of some kind, and migration controls will return. She pushed the notion of an ‘associate membership’ to remain within the customs union, despite this being simultaneously technically unworkable, logistically difficult, and certainly illegal.

She wants tariffs and border controls, but to be within a structure which removes those very things. Again with the cake-eating. She wants to have a trade agreement and a divorce agreement sorted in under two years. She has Bob Hope and no hope of doing either. Trade agreements are notoriously slow affairs, partially because they are highly complex, and partially because the people doing the negotiating are getting seriously well paid to do their work. It is in their interests to let timelines slide. The EU-Canada trade deal, for example, took almost seven years. And that was two negotiating teams that liked each other. Britain/EU negotiations will be much closer to a divorce than an amiable conscious uncoupling.

May has threatened to walk from any negotiations should they not go her way, cutting corporation and business taxes and weaken regulations to entice businesses to stay in Britain, which is directly at odds with her pledges to help the average British worker. The model Britain would pursue would be closer to Singapore or Malaysia, rather than the post-war Britain based on manufacturing and services. This is a direct challenge to the Irish development model and to the global economic system.

(An aside: by removing or curtailing the safety valve of emigration to Britain or the US, it also means some of the channels Ireland used to offset the effects of our once in a generation crises we seem to have every ten years are going to close).

I have argued many times in this column that we need to think about altering our development model. The IDA-supported foreign direct investment model championed by Lemass and TK Whitaker has morphed into a tax haven-lite economy where the Irish-domiciled shadow bank system in the IFSC is 15-20 times the size of the real economy.

A bright spot in all this is the nature of our recovery after 2013. More than two-thirds of the jobs created since the end of austerity have been created in domestic firms, not multinationals.

Our population is now one of the most educated in the world, adaptable in ways we could not imagine in previous periods of crisis. The historic peripherality our economy had to deal with is being partially offset by technology. Irish companies can sell their stuff to the world for next to nothing.

US president Donald Trump has promised US businesses lower corporate taxes, repatriation of some of the cash held in places like Ireland, fewer regulations, improved infrastructure spending to inject demand into the US economy. The result will be more growth, more inflation and a stronger US dollar. This, by the way, is exactly what former president Barack Obama wanted to do in 2014, but he was blocked by many of those now championing Trump on the basis that the US sovereign debt would balloon.

Budget deficits are no problem, apparently, when the person in the White House is a Republican. It should be noted that Trump is a liar and his previous economic plans were thinner than Vladimir Putin’s hair, so the level of uncertainty around the impact of his plans on the Irish economy is very high.

What does this mean for Ireland? It means the forces we are caught between are going to affect our quality of life materially, and our model of economic development must adapt. We rely on our policy makers to adapt as well.