The people of the UK have voted to leave the European Union. In what has come as a shock to most of the world, what are the implications of Brexit for the Irish Economy? In this article we explore how a UK exit from the EU will affect Ireland.
David Cameron made a promise to the UK electorate in 2013 while under pressure from the steady rise of UKIP that he would hold a referendum over the UK’s membership with the EU. At the time many could argue that this was simply a strategy that he could use in order to renegotiate the terms of Britain’s membership rather than a full exit.
As a result of the referendum, the main areas that may affect Ireland include; currency, border controls, free trade, free movement of people and workers, the agri-food sector, the motor sector and foreign direct investment (FDI).
The Initial Shock Of Brexit
Not only were most people in Ireland and the EU in a state of shock at the result of the referendum, but the stock exchanges and currency markets took a hit. $2 trillion dollars was lost on the global stock markets on Friday 24th June 2016 when the result was announced, compounded by David Cameron’s resignation as Prime Minister of Ireland.
The Value of the Pound
The pound also lost value against the Euro as a result of Brexit news. Some have predicted that the value of the pound will be €.88 which will have a profound impact on the border counties in Ireland. Counties including Donegal were benefiting from cross border shoppers coming from Northern Ireland to Letterkenny who took advantage of the strong pound. Letterkenny was a town that benefited greatly at Christmas in 2015 which saw a massive influx of shoppers from Derry and Strabane who took advantage of the then £1=€1.40 offers.
It is highly likely that we will see the reverse effects in the months to come which was also experienced in 2009 where people in Donegal flocked to Derry and Strabane while those in Drogheda shopped in Newry. This will have consequences for retailers in border counties who were flourishing in recent times.
An issue that is likely to be a contentious one is border controls in Northern Ireland. Following from the last point, at the moment there is nothing to suggest that there will be no border controls between Ireland and Northern Ireland. Unless an agreement can be brokered between the UK and Ireland, border controls are realistic as Irish people traveling to Northern Ireland are effectively leaving the EU. Time will tell, whether or not the UK can negotiate an EU deal on the movement of people.
An All Ireland Referendum?
Sinn Fein were quick to jump on the issue of the border controls and the fact that the majority of those in Northern Ireland voted to stay in the EU
The issue could throw up old conflicts between Nationalists and Loyalists. A vote is unlikely in the immediate future. Would the Republic of Ireland be able to manage another 6 counties? It is unlikely considering most of rural Ireland is currently on its knees.
The Affects on Trade
As a result of the referendum, the trading relationship between the UK and Irish economies will become strained unless both governments can agree a trade agreement. No longer will there be a free trade agreement as set out by the EU. The upcoming negotiations between Ireland, the UK and the EU will be very important for the future of the Irish Economy. Will the EU allow for a special deal between the 2 countries? Unlikely. The UK will have to set in place a deal with each EU country or adopt a free trade agreement similar to what Norway have at the moment.
The sectors that are most likely to take a hit will be agri-food and motor industries.
The agri-food sector could potentially become the worst hit sector in Ireland. The sector currently amounts to over half a all meat and a third of all dairy exports to the UK from Ireland. In a sector that has been booming, even during the 2008 – 2011 recession in Ireland, it could take a huge hit should trade negotiations fail.
The motor sector could also take a hit with a potentially beneficial exchange rate, there may be a surge in UK registered vehicles getting imported into Ireland. This will in turn drive down the prices in Ireland for new vehicles. It has been argued that the result could lead to many Irish motorists in negative equity if the value of their cars drop in value.
Foreign Direct Investment
With the UK’s exit, Ireland becomes the only EU country that is English native speaking. This will increase the chances of US companies moving to Ireland or expanding their work force.
Overall, the full consequences of the Brexit referendum will not be felt until the UK trigger Article 50 of the Treaty of Lisbon. The process of the UK exiting the EU may take 2 years or beyond. Once the UK leaves they can still rejoin the EU through invoking Article 49 of the Treaty of Lisbon.