Price of Brexit for Ireland is damaging fog of uncertainty

‘Fog in Channel, Continent cut off”. So, legend has it, read the headline in a British newspaper, some time in the dim distant past. Now the two sides will, indeed, be cut off from each other, assuming the British government follows the path dictated by the referendum.

While all the focus now is on the short-term turmoil in the markets, it is the slow-burning issues that could really matter for Ireland. The currency turmoil will cost, as will lower growth. Adjustment to these trends is possible – but it comes with a price.

What has the potential to cause more lasting damage is the fog of uncertainty about the big issues – the terms on which Britain will trade with the EU and Ireland and the future direction of the EU, in particular. The problem here is that we don’t know what we will be dealing with, and may not know for some years.

Right now, we are caught in the moment. Sterling and shares have collapsed. This has a cost, assuming it continues. Exporters to the UK will be hit. Tourism will be hit. And the fall-off in international economic growth has inevitable and potentially painful consequences here. Growth will be lower, fewer jobs will be created and there will be less money in the Government’s coffers.

This will now be the dominant short-term issue for the minority Government. It was already struggling to find enough cash in the budget to meet all the demands it is facing. In the likely event of a hit to growth and tax revenues, it will now have even less.

Given the huge public expectations of higher spending, this may not be easy to deal with politically. The various lobby groups are due to troop in to meet the Government and discuss the budget as part of the grandly titled national economic dialogue next Monday and Tuesday. What on earth are they to be told?

Economies do adjust to periods of lower growth and currency moves in time, albeit at a cost. Growth here has some momentum, so we have some leeway. The really tricky Brexit issues though are the longer-term ones – the things that have not changed overnight, but are now bound to, in time. They are, in particular, the rules governing trade between Britain and the rest of the EU, including Ireland, the Border with the North and freedom of movement for Irish people to work in Britain and British people to work here.

Beyond that, the Brexit vote raises two big political questions with a potential economic impact – the future of the UK and the wider implications for the future of EU. Already anti-EU forces in the Netherlands, France and elsewhere are mobilising. Trying to game plan how this will all work out is impossible.

But if you are an investor in Irish government bonds, for example, you would want to be sure that the EU and the euro will still be there in 10 years’ time. And if you were, say, planning to invest in a food business with a view to the UK market, you might hold off for a while.

These issues really matter for businesses and financial investors. Companies need to know the terms on which they will be able to buy and sell from the UK. Employers and employees need to know what will happen to labour mobility.

Businesses moving goods around the island of Ireland need to know if this can continue. Big pension funds need as much certainty as possible on their investments. The problem is that these issues may not be clear for years. Talks on the UK leaving the EU are due to take two years after Britain notifies its intention to go, but nobody knows whether the negotiations on new trading rules will take place in parallel with this, or afterwards. And the results are unpredictable.

Will they be led by a desire to safeguard trade or in a spirit of policy acrimony where the big players decide Britain needs to be “punished?” And what about the separate issue of the travel arrangements between the UK and the Republic – and the Border?

So the really damaging fog will be made up of uncertainty – and uncertainty breeds delay in companies investing, in people spending, in decisions being made. We already saw some of this in the run-up to the poll, but the problem is that the result does not remove this – rather it adds to it.

Senior advisers in Dublin are already talking about clients developing plans A and B and sometimes C for a range of business circumstances. The risk is of uncertainty building and reinforcing the initial and inevitable hit to economic growth that Brexit will bring.

A string of business lobby groups has called for all this to be sorted out as soon as possible. The problem is that as soon as possible could mean three or four years – or longer, in a string of events largely out of Ireland’s control. We will make our case, for sure, but in terms of trade and business rules, in particular, the EU will do the negotiating.

Perhaps, in time, businesses will just get on with it and make decisions on the basis of what they expect will happen. And Ireland could get a boost from some inward investment that would otherwise have gone to Britain or from financial firms transferring here. But adjusting is difficult when you don’t know what you are facing. The real problem after Brexit is the lingering legacy of uncertainty and the length of time it will take to clear.