Walking the tightrope: Ireland’s Brexit dilemma

Tony Connelly / Oct 2016

Ireland's prime minister, the Taoiseach, Enda Kenny. Photo: Shutterstock


On Wednesday October 12 the European Commission’s chief Brexit negotiator Michel Barnier was given full red carpet treatment in Dublin, the fourth capital he has visited since taking up his position.

Instead of meeting a foreign minister, or senior official, Mr Barnier met Taoiseach Enda Kenny himself, and a team of officials.

Ireland is leaving nothing to chance. Foreign Minister Charlie Flanagan has described Brexit as the “greatest foreign policy challenge” the country has ever faced.

If his visit was low key, however, it was because Mr Barnier was on “listening” mode, and also because Ireland was in the grip of the first national budget since the minority government was formed after an inconclusive general election in February.

While Kenny and Barnier, who know each other through the European People’s Party (EPP), were holding discussions, the Irish public was digesting what Kenny has called a “Brexit-proof” budget.

It is impossible to overstate the potentially devastating impact the British referendum result will have on Ireland.

Theresa May’s Hard Brexit speech to the Tory Party will have grave implications for all of the issues the Irish government worries about: the Good Friday Agreement, future trade with the UK and a “Hard Border” on the island of Ireland.

The annual bilateral trade in goods and services between both countries is over €60 billion and it relies entirely on both being members of the Single Market.

“What people in Ireland are waking up to is that we have two trading relationships, one with the UK and one with the rest of the EU,” said one Irish source. “We are now going to get damaged in one, so we better make sure we don’t get damaged in the other.”

Ireland, though, will have to walk a tight rope: asserting on the one hand that the government’s core policy is alignment with the new EU27, while unavoidably being the country with the closest historical, cultural and political links with the UK on the other.

Ireland has a unique bilateral relationship with the UK, managed through the institutional structures of the Good Friday peace agreement.

While the EU’s strict message is that there will be no negotiations between member states and Britain until Article 50 is triggered, Enda Kenny was expected to remind Mr Barnier that the dense diplomatic and political ties between the two countries needed “space” to continue as usual.

This will certainly raise suspicions that the Brits will use those links to pick the Irish off.

While some opposition parties in Dublin have accused the government as being asleep at the wheel when Theresa May made her speech, Dublin had been scrambling before the referendum to get prepared.

Each government department (late in the day, according to some critics) was requested to set out the extent of its exposure to a possible Leave vote.

An informal paper, meanwhile, was circulated among the negotiating teams within the Commission and the Council.

It sets out in stark detail the risks Ireland faces.

Some 17pc of Ireland’s global goods trading relationship is with the UK (goods traded with the eurozone area amount to 33.6pc). UK companies employ 200,000 people in Ireland, while Irish companies employ the same number in the UK.

The impact on Ireland, with a potential decrease in GDP of between 1pc and 5pc, is by far disproportionate to that faced by any other member state.

Already Irish exporters are suffering from the 17pc fall in the value of Sterling since the referendum result, among them the mushroom growers around the border with Northern Ireland who send 90pc of their products to the UK.

Dublin has already reduced its economic growth forecast to 3.5pc of GDP for next year, and the eagarly awaited budget for 2017 contains various Brexit-related measures.

The sectors most exposed are SMEs, often regional in character and concentrated, like the mushroom growers, on the food and beverage sector. The budget has attempted to make it easier for Irish producers to diversify their export markets away from the UK, and to help companies relocate staff back to Ireland.

Farmers hit by the downturn in sterling and a potential tarrif war in the future will have access to a new €150 million loan fund, while there will be a new “rainy day” fund of one billion euro every year from 2019.

While Ireland will have to compete with a multitude of actors all of whom have an interest in maintaining close trade links with the UK, where Dublin can command more sympathy is on the Irish peace process.

The Good Friday Agreement of 1998, following the 1994 IRA ceasefire, was cemented in no small measure by money and support from Brussels.

EU membership by both countries provided space in which complex and intractable issues of identity and allegiance could be elegantly sidestepped, or smoothed over.

The pooling of sovereigny at EU level also allowed Irish and British politicians over the years to communicate away from the heated rhetoric which had characterised Northern Ireland’s civil conflict after it erupted in 1969.

The informal paper points out that the Good Friday Agreement is based on the “assumption of the continuation of EU membership by both the UK and Ireland” and that since the Agreement recognises all citizens of Northern Ireland as having the entitlement to consider themselves Irish, it means that every person from Northern Ireland is potentially a citizen of an EU member state “including after the UK exits the EU.”

Northern Ireland has also been a major beneficiary of EU programme funds.

From 2007 to 2013 the EU provided €2.4 billion to support its development as a peripheral region emerging from conflict.

The province has also been a disproportionate beneficiary of CAP funds, relative to the rest of the UK, and its heavy reliance on public sector jobs – combined with a higher level skills shortage– has meant that the withdrawal of EU funds could have a severe impact, both socially and politically, as many conflict resolution programmes relied strongly on money from Brussels.

As Edward Burke, a lecturer in strategic studies at the University of Portsmouth, has pointed out: “The prospect of a vastly increased transfer of funds – drawing on those which are currently part of the UK’s contribution to Brussels – from London to Belfast also does not appear to be likely.”

How Ireland, both North and South, can get their point across once the negotiations start in earnest is a moot question.

During her Tory Party speech Theresa May appeared to slap down the notion that Scotland and Northern Ireland could maintain some meaningful, tailor made relationship with the EU and its Single Market.

“Because we voted in the referendum as one United Kingdom,” she told the faithful, “we will negotiate as one United Kingdom, and we will leave the European Union as one United Kingdom.

“There is no opt-out from Brexit. And I will never allow divisive nationalists to undermine the precious Union between the four nations of our United Kingdom.”

To some observers, while she had Scotland in mind, she was effectively throwing Northern Ireland under a bus.

For its part the Irish government will rely heavily on Enda Kenny’s high standing within the EPP, and his experience at European Council level to argue Ireland’s case.

But there has been a question mark over how long he will remain Taoiseach (although he has recently signalled, contrary to a growing assumption within his Fine Gael Party that he would step down probably in the spring, that he will remain in charge to fight the next election).

Kenny is regarded at Council level as being solidly on message when it comes to the EU’s red line that Britain cannot have access to the Single Market without abiding by the four freedoms, including free movement of people.

At the summit on June 29, that declaration was inserted at the highest political level, ie, by the 27 leaders themselves during the discussion, not by officials.

It was noted at the time that Mr Kenny had signed up to the principle, and had repeated it in his news conference following the summit.

Dublin believes that it has made a convincing case to both Michel Barnier and the European Council President Donald Tusk on Ireland’s particular difficulties.

Tusk’s team will set out the political guidelines on negotiations once Article 50 has been triggered, and the Commission will take over the vast swathes of technical work on the actual divorce between Britain and the EU.

Ireland has been promised that one Irish official currently working in the EU institutions will be appointed to Barnier’s negotiating task force once it expands to 20.

That would potentially be important as an eyes and ears for Dublin, but as Commission officials are supposed to pledge their allegiance to the European interest and not national capitals, the value may be limited.

The Irish government’s biggest concern may be the very fact that Britain has a weak hand. If the cost to Ireland’s economy suddenly becomes graphically real, then sentiment towards Ireland following Britain out of the EU– for decades only a fringe notion – could chrystalise.

This could be fanned by the British tabloid press and the Eurosceptic commentariat, as an Irish exit would neatly address the problems of Northern Ireland and trade.

“They’ll make it hard for us to stay in,” says one Irish source. “That would solve the North issue and weaken the EU. The UK is in a weak position and they’ll have to play every card they have. And we’re a card.”

The traditionally pro-EU Irish electorate may prove to be more fungible than ever. “We could only join the EEC when the UK joined in the early 1970s,” says Irish MEP Brian Hayes. “And the question will inevitably be asked now - can we in Ireland remain in the EU now that the British are leaving?

“It's an honest question that lots of people will ask and it deserves an honest answer. Those of us who believe that Ireland should remain at the heart of the EU post Brexit and integrate further, need to be able to answer this question openly and honestly.

“People who ask this question should not be treated as ‘crazies’. It's a legitimate question to ask and have answered.

There is, it’s understood, every bit as much impatience with Theresa May and her new found Brexit zeal in Dublin as in other EU capitals.

Dublin realises that, if Britain quits the EU Single Market and the Customs Union, then there will inevitably be a return to a “Hard Border” separating North and South.

EU officials are aware of this. After a meeting between May and the Taoiseach a senior Brussels official asked the British side how they could square the lack of a hard border with Britain leaving the Customs Union. According to the offical: “They replied, ‘We don't know, we don't have an answer’”.

Irish officials may look to the Nordic Passport Union as a model, as it allows free movement of people between, for example, Norway (not an EU member) and Sweden (which is). The fact that neither Ireland nor the UK are in Schengen would help.

Much will also be made of the Common Travel Area (CTA), an administrative understanding between the two countries which has permitted ease of travel and residency between both sides since long before Ireland and the UK joined the EEC in 1973.

But the real problem post-Brexit is not the “travel” part of the CTA, but what happens to the rights and legal status of the people, goods and services which currently move freely in large numbers across the border in both directions.

Officials have wondered what will happen to milk which is produced on one side of the border and processed on the other, or to pigs and lambs which are raised on one side and slaughtered on the other.

If Northern Ireland is out of the EU and its Single Market, then all the regulations which facilitate that free movement will no longer apply. Squaring that circle will be extremely difficult.

As the informal paper, circulated among EU negotiators, points out: “Any reintroduction of a hard border on the island of Ireland would have a devastating impact on Northern Ireland and in particular on the thousands of people whose daily existence is a cross-border one.”

As the negotiations progress other issues will arise that will pose real problems.

Ireland gets most of its energy from the UK. Will there be tarrifs on energy if Britain is outside the Single Market, and how will that effect Irish energy prices?

Fisheries will also be a problem. The demarcations of British territorial waters have never been properly clarified; when both countries were members of the EU and its Common Fisheries Policy it didn’t matter. Now it will.

The same applies to maritime routes for shipping.

“It’s a mess and a nightmare,” says one Irish source. “The Brits will be hoping some things are just not discussed.”

How brutal the impact is for Ireland will depend on how much of the negotiations are completed on time.

Under Article 50 the negotiation period lasts two years, and can only be extended by a unanimous vote of the EU27. The first element is to negotiate a Withdrawal Treaty, the disentangling of 43 years of laws, rights and obligations that came with British membership of the EU.

After that comes the Framework Treaty, which will govern Britain’s future relationship with the EU, and its Single Market.

While there will be some parallel outworkings of both processes, it’s certain that a transition agreement will be needed to bridge between the conclusion of the Withdrawal Treaty and the final shape of the Framework Treaty, which could take many years.

Without a transition agreement British businesses – and by extension Irish exporters – would face a cliff as Britain would have to resort to becoming a “normal” member of the WTO in order to continue trading with the EU. Ireland would then be in the realm of tarrifs and other trade barriers.

There is no doubt that Ireland can enjoy an upside from Brexit. Dublin is frequently cited alongside Paris and Frankfurt as ideally placed to attract financial services companies who decide to leave the UK if and when their “passporting” rights to sell into the EU are gone.

The Irish foreign direct investment agency IDAIreland has just had its funding increased and it will be agressively seeking to attract companies to Europe’s only significant English-language economy that is both a member of the eurozone and the EU Single Market.

Ireland is also in the running to secure the European Medicines Board which is currently in the UK.

While such benefits remain in the abstract, the costs of Brexit are already being felt by Irish exporters, especially in the food sector.

In the meantime, the sense of the unkown is like a kind of paralysis. No-one knows how the negotiations will be conducted, how brutal they will be, and how the European political landscape will adapt.

“Britain will need a hard slap, on one big issue [in the negotiations],” says one Irish source. “We’ll need to make sure it doesn’t affect us. That’s the space we’ll need to watch.”













Tony Connelly

Tony Connelly

October 2016

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