There are many bystanders across Europe awaiting with baited breath the results of the UK’s referendum on leaving the EU. In most cases it’s extremely difficult to assess what the potential impact is going to be on the UK economy never mind others in Europe. However there’s some consensus from some economists that it is the Irish economy could be most affected by a decision to leave.
Trinity College Dublin
The latest research is from the Oxford Economics group who have studied the potential impact on Ireland’s economy in some detail. Their conclusions are that a ‘Brexit’ is almost certainly bad news for Ireland with the worst case scenario suggesting a 2.2 fall in Irish GDP.
The Irish economy is of course, in a period of recovery after a meltdown in the recession. This year however the economy is forecast to expand by nearly 5% with a similar expectation for 2017. This growth rate would be seriously affected if the UK left the EU and an even bigger impact would be on small businesses in Ireland.
It is difficult to overestimate the links between the UK and Irish economies. Although they are separate economies which is often highlighted to me when I can’t catch the news on BBC iPlayer Ireland when visiting Dublin – the UK is by far their biggest trading partner in Europe and the referendum is bound to have a huge impact.
Over 40% of Irish exports are sent to the UK and the percentage is probably much higher among smaller Irish businesses who often are completely reliant on UK trade. The actual impact though would depend largely on post-exit negotiations with both the EU and the Irish government.
There are certainly some much more favorable options which involve various settlements and agreements being made on immigration and trade. These could possibly mean that the impact is fairly inconsequential although these are likely to take time to negotiate and it is expected that even the uncertainly would have some impact on the economies of both the UK and Ireland.
This is the month (December 2013) when the Republic of Ireland will reach the end of it’s internationally funded bailout programme. The journey began in November 2010 when it’s biggest banks reached the brink of collapse in spectacular fashion. To rescue them the country was forced to take a 67 billion Euro loan, another huge amount was taken from the the State’s Pension reserve fund.
There was obviously a political cost to pay, the ruling coalition was dumped out of power a few weeks later. The two parties were hit hard – Fianna Fail plummeted and the junior party, the Greens completely wiped out.
Now Ireland is seeking to regain some control and it’s independence again. It will crucially be able to borrow on the International bond markets too. It is hoped the worse of this humiliating episode in Irish history will be at an end.
It is expected that Ireland’s experience will be held up as a role model for those who find themselves in a similar situation. The country has applied and accepted severe austerity measures with relatively little fuss. A political cost has been paid of course, but that was almost inevitable whichever course of action was taken.
The leaders of countries like Portugal, Spain and Greece will be carefully looking at the example of Ireland and seeing if they can replicate it’s recovery. Ireland of course is still saddled with many problems – including huge debts but there is now light at the end of the tunnel. Ireland has many reasons for optimism including many booming companies who have set up there due to it’s low levels of corporation tax. The links with both Europe and close bonds with the UK combined with low tax threshold are of obvious attractions. However there are still some barriers especially in the digital economy.
You may be surprised to hear that a country so closely tied with the UK is unable to access it’s national broadcaster on the internet. This fact the author discovered last week on a visit, fortunately with some internet trickery that was solved through this method I found on Youtube.
So does this mean that austerity can work, is it the answer that debt ridden Europe is looking for? Perhaps it is the problem is that in many cases it also represents political suicide if the measures deliver results over decades rather than years. For instance the IMF loans to Ireland will not be paid off until 2042, and the country will have to endure extensive audits until 75% of the loans have been settled. It’s not a timescale that normal democratic politics fits in well with unfortunately, politicians get elected from providing ‘good stuff’ not paying off loans.