So, another day and another rebuff for David Cameron in his desire to make the United Kingdom into Schrodingers Member – neither in nor out of the EU. The stark reality is that the key changes he feels he must seek or else be eaten alive by the right are unlikely to be deliverable. So what then?
There are two intertwined issues here – the politics and the economics. In the very long run the economics will win out. But in the rolling short to medium term the politics will dominate. How the two tensions play with and against each other is what makes political economy. Focusing on one alone is not going to give a full perspective.
A BREXIT, which if it comes will come from the combination of an oversold minor tweaks package which Cameron achieves being savaged by the feral xenophobic hounds of the Rothmere and Desmond newspapers, would have massive economic ripples. Perhaps nowhere would they be more profound than here in Ireland.
Before we conclude however that the ripples are such as to swamp us the nature of the post BREXIT world would need to be gamed out. In my view it is highly unlikely that a UK outside the EU would be quite as integrated as it remains. The truth is that economically the UK benefits from the EU ; it is around high issues of national sovreignety and low issues of Johnny, Jose, Jagna and Iulia Foreigner daring to exercise the right to freely move within the EU that the splits arise. However, there is zero chance of this changing. There is also as close to zero as possible a chance of countries such as Ireland and Poland allowing the UK to treat their citizens different to UK when in work. There is even less for a UK proposal to treat us as them and them as someone else. So a post BREXIT world will see a UK out in the political cold. There is then every chance that the debate having been sour and memories long the continental powers will impose a settlement on the UK that in effect relegates it to a position inferior to EEA members such as Switzerland and Norway.
Depending on the trade and related deals the UK would shrink but shrink it would. An isolation would hurt the continental EU counties but not by much – a .2% reduction in GDP per capital by 2030. By contrast that would cost us 2.26%, an order of magnitude. But even the softest exit where by they UK remains in effect in but out, an unrealistic pipe dream, would cost us more than the UK. So either way, a BREXIT will cost us. And big. But these are only the direct costs. An isolation scenario would see the UK real income decline by up to 14% and ourselves by similar.
Faced with a scenario where this will hurt, what can we do to mitigate it? There are political issues at work here. First, in the centenary timeframe of Irish independence there is no party which will argue for an EU exit and greater cooperation with the UK. Despite that we are in effect one economy that will not happen. Second, we will face a problem in an open land border with a Non EU nation. So there will be one boost, to the concrete and barbed wire business, as a hard border is laid- 200km of barbed wire times 10m is a lot. Facing into a razor thin majority in the House no conservative government will impose passport and travel restrictions on one part of the UK. Of course, a BREXIT where NI and Scotland voted to remain while England/Wales voted out would also pose issues – are we prepared to take on NI? Again, in the centenary years the temptation would be irresistible. However, the economy of NI is precarious to say the least. Finally, the UK is as a state our largest single market and greater frictions there, not to mention the closing of the safety valve that is the free movement of workers, all of these would pose problems.
To counter this we need to reach to the hoary old Irish republican slogan : England’s difficulty is Ireland’s opportunity. Three avenues are open. First we can and should position ourselves to pick off as much UK headquartered FDI as possible. If firms don’t want to leave an open, Anglophone, common law country then..don’t. Just move over the road. The LSE stress, in their report on BREXIT, the vital importance that is played by FDI in the UK. A second avenue is on education. Post BREXIT the UK higher education sector would be cut off from hundreds of millions of euro of EU related funding. Irish HEI’s should be encouraged to, bluntly, poach, entire teams or departments dependent on such funds. A more open approach to education related visas would be useful anyhow but we should also be seeking to grab both the substantial non EU and substantial EU student and researcher flow to the UK. Here we are not just talking about language teaching, which is a godawful mess here, but IoT and University flows. 200k international students enter the UK per annum for formal study. A BREXITed isolated UK will neither be attractive to them nor welcoming to them. We can be both. Third, Irish politicians need to make it clear that we are willing to forego our revanchisim, to enter Schengen, to generally be prepared to fully commit to the EU in a post BREXIT environment, but that there is a cost here which the EU will have to pick up. A good place to start would be with the Anglo/IBRC cost…