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Can’t agree on the potential cost of a united Ireland? The Germans may have the answer

Germany’s experience is relevant to Ireland given the sharp differences that followed the publication of a report on unification costs

Unification could cost up to €20 billion a year without the existing £10 billion UK treasury subvention, plus the costs of paying UK pension debts, according to a report. Photograph: iStock

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Mark Hennessy
Thu Apr 4 2024 - 20:19

In the early 1990s, then German chancellor Helmut Kohl declared that the costs of German unification would run to the equivalent of about €50 billion in each of the first few years but not more.

Emphasising Germany’s ability to manage, he saw “no reason for raising taxes” to pay for unification. Just two months later, he promised that the East would transform quickly into “blossoming landscapes”.

Even now, it is not clear what Kohl privately really thought unification would cost, but he was convinced that it was a necessity.

At the time supporters of hurrying unification played down the cost, while those who favoured moving more slowly, or opposed unification, exaggerated the numbers where they could.

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So far, some €2 trillion has been spent binding the two parts of Germany together, though this is only the number that can be tracked.

“Nobody knows the real cost,” said Fianna Fáil Senator Mark Daly, who has drawn heavily on the German experience for the long-running Seanad inquiries he has led on Irish unity.

On top of income tax, Germans from 1991 paid a 7.5 per cent solidaritätszuschlag tax, which translates as “solidarity surcharge” on income tax, capital gains tax and corporate tax. It dropped to 5.5 per cent in 1998. In 2021 it was scaled back significantly so only the top 10 per cent of taxpayers are still charged

Despite the cost, there is no remorse around their unification. German president Joachim Gauck said in 2015 that most Germans feel they have “arrived” and are “at home in this unified country”.

Germany’s experience is relevant to Ireland given the sharp differences that followed the publication of an Institute of International and European Affairs (IIEA) report on the costs of Irish unification on Wednesday.

[ United Ireland: ‘It can’t be, Which side is going to win?’ ]

Economists John FitzGerald and Edgar Morgenroth argued in the report that unification could cost up to €20 billion a year without the existing £10 billion (€11.6 billion) UK treasury subvention, plus the costs of paying UK pension debts.

Both assumptions were strongly questioned.Highly critical of the report, Prof John Doyle of Dublin City University said they had placed the worst possible interpretation on the economic numbers.

Doyle argued that everything “would end up somewhere in the middle”, since both the Irish and UK governments would want a deal.

“Despite all the rhetoric, Ireland has long been Britain’s strongest support inside the European Union,” he said.

“You’d have to assume that their strategic interests would be to strike some sort of deal where you had a friend left inside the EU that you could call on if you wanted something across the line.”

The importance of the subvention is exaggerated, he believes, since it is largely “an accounting exercise” that covers tax paid and public spending in Northern Ireland, in addition to the North’s share of wider UK bills, such as debt, defence and foreign affairs.

Most of the bill estimated by the IIEA report comes from matching Northern Ireland’s public pay and welfare rates with those of the Republic, though Doyle believes this could be done in stages.

“On debt, we don’t need a deal. If there’s no deal, we just walk away and we don’t take any debt so it impossible for the figure to be €10 billion or €11 billion. If there’s no deal, it would be around €4.5 billion.”

Even that figure will be shown to be too high, he predicted, since the British government would be far more likely to want to bring an end to the annual subvention quickly.

If London agreed to pay it on a declining scale, then there would come the day when London no longer wanted to do so, but that would create a cliff-edge political moment that politicians prefer to avoid, he said.

Continuing to pay UK pensions, for which hundreds of thousands of people in Northern Ireland have long paid social insurance, would be far easier to hide in the wider numbers, he said.

Negative reaction to the report was led by Ireland’s Future, the campaign group that argues that planning for unity must begin now in advance of a referendum, preferably in 2030.

[ The Irish Times view on attitudes on a united Ireland: a dose of realism for the debate ]

It welcomed the report as “another contribution to the intensifying discussions on a united Ireland” before rejecting it as offering “a stagnant worst-case scenario when the picture is far more dynamic”.

The report ignored the fact unification would “be the singular most important” impetus to growth in Northern Ireland since its economic stagnation is “directly and uniquely as a result of being tied to London”, the group argued.

Fitzgerald and Morgenroth are not alone in believing that the education and productivity crisis in Northern Ireland is deep and entrenched – and that it will take big efforts to fix.

Northern Ireland is the only place in western Europe where jobs with multinational firms pay less than those offered by small- and medium-sized firms, displaying “the dominance of things like call centres and backroom operations”, says Doyle.

“Underlying wages have been dropping year on year in the North by 1 per cent a year,” he said, while productivity in the North is 40 per cent below the Republic, despite being equal in 1998.

Robin Wilson, who runs the online publisher Social Europe, argues that the Northern Ireland economy is now “a basket case”, though that is not fully understood by many in the Republic.

The reasons are many: a brain drain of the best students to Britain, educational discrimination and snobbery that hurts the less well-off and the destruction of east Belfast’s industry during the Thatcher years.

“What strikes me most is how there are more shuttered business premises in Belfast than even during the height of the IRA bombing campaign,” he said.

Fianna Fáil’sMark Daly believes that planning for unity should be under way, though he disagrees with Fitzgerald and Morgenroth on some future costs.

“We’re not going to start negotiating with the British on the day after referendums happen, right? That is the lesson from Brexit. Negotiations will have to happen before then. People will have to know what they are voting on,” he said.

“Look, we’re not going to end up paying RUC pensions, right. We got stuck with RIC ones in 1921, but that is not going to happen now. And there will be lots of other things like that.

“And, yes, the British will haggle, arguing that the unified Ireland will be the ones to benefit from past infrastructure spending in Northern Ireland,” he said.

The Kerry politician cautions against those who might hope for a fully itemised bill of costs before any unification referendums.

“The decisions we will make in the coming years, if we get the chance to make them, will not be about the five, or 10 years,” he said.

“They’re about the next five generations, the next 100 years, and longer. That’s what this is about.”

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