Cliff Taylor: Far more danger in Brexit than just the Border

The summer is over. The swallows are getting ready to fly south. Fine Gael and Fianna Fáil are skirmishing about the future of the confidence-and-supply agreement. Budget speculation is well under way.The party think-ins are under way. It feels like any other year.

Except for one thing. There is a risk that in six months' time, we will be hit by an economic tsunami in the shape of a no-deal Brexit. It would be a stretch, right now, to say that a no-deal Brexit is likely – but it would be foolhardy in the extreme to consider it to be only a remote possibility.

A no-deal Brexit is now a real risk, even though it is exactly what the negotiators on both sides desperately want to avoid. Yet it is strangely absent from our national political debate, which is carrying on regardless, dominated by posturing over the timing of the general election and the usual scramble for budget goodies. When we talk about Brexit, we talk about the Border, and that – so far – is about it.

Plenty of calculations have been done about the economic cost of Brexit to Ireland and these remain relevant for the years ahead. These are based on the barriers to trade which would arise if there is no long-term trade deal between the EU and UK, or one that offers less free trade than what is in place currently. They are useful long-term orders of magnitude on what Brexit might cost.

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But it’s impossible to construct an economic model which will tell you what will happen in the few months after a no-deal Brexit. How do you model the kind of chaos and uncertainty which would follow,the political and economic fallout and the impact on confidence? Answer: you can’t.

Let’s define exactly what we are talking about here. A no-deal Brexit is the term generally used to refer to a failure to conclude a withdrawal agreement between the EU and UK.

Three hurdles

There are three hurdles to jump in the months ahead. First, a deal must be reached on the Irish Border and other outstanding issues. Then a political declaration on the future relationship between the EU and UK must be signed – a kind of framework for detailed talks after the UK leaves. And third, the whole thing has to go through the UK parliament.

Of course all three are linked and the scenarios are nearly as complicated as those involving the new Nations League in football.The backstop deal on the Border – to guarantee no border no matter what new trading arrangements emerge – remains a key issue on which no real progress has been made in recent moths.

The worst “no deal” scenario would be an acrimonious falling-out between the two sides, with all existing legal agreements between the UK and EU ending on the day the UK leaves. Customs and trade barriers would go up immediately and chaotically, and huge uncertainties would emerge on regulations in a whole host of sectors, notably pharmaceuticals, aviation and food, but many, many more too.

It is possible that a no-deal might happen in a somewhat calmer atmosphere, with measures taken to lessen the economic and political damage. But the current mood music is fractious.

If there is no withdrawal agreement, then the deal that has been done over what the UK must pay the EU when it leaves falls, as do agreements on citizens’ rights. And there will be no transition period – effectively a standstill in trading and many other arrangements until the end of 2020 that removes many of the immediate risks – after the UK leaves.

While the Taoiseach has said contingency planning for a no-deal scenario does not involve a Border on the island of Ireland, it is hard to see how one would be avoided, unless a deal is done to check goods as they enter and leave the island of Ireland, so far dismissed by the UK. Notably, the Revenue Commissioners said this week that they were preparing for customs checks if needed.

Interestingly this week there were reports of comments made by EU negotiator Michel Barnier to a House of Commons committee, apparently part of an attempt to take the heat out of UK opposition to the backstop. He reportedly pointed out that checks could take place in some cases on boats crossing the Irish Sea, or at ports, to help avoid border checks on the island of Ireland.

But the point remains that the EU is firm that the checks must take place somewhere if the UK leaves the EU trading bloc, to protect the Single Market. Otherwise how do you control smuggling, or the entry of goods from third countries via the UK into the Single Market which do not meet EU regulations?

Trade disruption

A no-deal result would also bring huge disruption to Irish trade with the UK, along with uncertainty about delays on goods transiting through the so-called UK landbridge to continental EU markets. It would threaten supply chains to supermarkets and other retail outlets here, the supply of drugs, flights to and from the UK, and a hundred and one other areas. It risks a short, sharp economic shock different to the kind of longer-term impact assessed by the economic models and built into our budget plans.

There are some things that can be done to prepare for this risk. No doubt the State will move to secure drug supplies, for example. It will try to reach an accord on the common travel area with the UK , allowing Irish citizens to continue living and working in the UK and UK citizens here. However, in terms of how it would play out, much would depend on whether the EU and UK could agree moves to limit the damage.

A no-deal scenario may be avoided.Something might be cobbled together. Or the idea of extending the UK’s exit date under Article 50 might come on to the table.

The no-deal risk will dominate the headlines in the weeks ahead as the two sides re-engage. By Halloween, we will be well into the spooky horror stories about what a no-deal might look like. The question is whether this will be followed by the typical, EU-style, last-minute breakthrough. Let’s hope it is.

Either way we won’t know until November. In the meantime, we need to move our national debate about Brexit beyond the single focus on the Border. The risk of no deal needs to be recognised and should form part of the budget calculations as it would hit tax revenues. Businesses need to be alerted.

A no-deal Brexit can no longer be written off as a real risk for 2019.