Convergence between economies in Republic and North a ‘significant’ challenge

Pressure to hold a Border poll for Irish unification is “becoming difficult to resist” in the wake of Brexit, but poses risks for the financial strength of a merged economy, according to leading international credit ratings firm Moody’s.

"While there are very significant uncertainties about what would happen in such a scenario, a decision for Northern Ireland to join the Republic of Ireland would have implications for Ireland's economic and fiscal strength that go beyond the obvious political uncertainties that it would generate," Moody's said in its annual credit analysis of Ireland.

"The Republic is far wealthier than Northern Ireland and its economy grows much more quickly. Facilitating some economic convergence between the two entities would be a significant and public policy challenge."

While Moody’s said that EU funds would “almost certainly” contribute to financing any unification plan, “it would not be surprising” if Northern Ireland had to bring its proportion of the UK’s debt burden and public sector pension liability into a new combination.

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“Northern Ireland’s public expenditure also far exceeds the tax revenue that is generated in the region (transfer payments from the UK national government fills this gap),” the ratings agency said. “In the absence of policy and expenditure changes, this would also likely have implications for Ireland’s fiscal strength.”

The Economist magazine suggested in an editorial last month that a united Ireland could "come to seem unstoppable" following the strong showing of Sinn Féin in the general election in the Republic on February 8th – even though Fianna Fáil and Fine Gael have each ruled out entering coalition with the party.

Former taoiseach Bertie Ahern said following the election that a Border poll is "inevitable" in the next 10 years, even if "it would fail" if a vote was to happen now.

Plebiscite pressure

"At this time the UK government would resist holding a referendum, but in the wake of Brexit, we could see pressure to hold such a plebiscite both in Northern Ireland and in Scotland becoming difficult to resist," Moody's said.

Moody’s did not provide a financial analysis of the costs involved under a reunification scenario.

A Trinity College Dublin paper written by economists John FitzGerald and Edgar Morgenroth last year noted that the North relies on the equivalent of about an annual €10 billion UK subsidy to prop up the regional economy.

The report said that if the Republic took on that cost, it would result in the standard of living in the South being cut by between 5 per cent and 10 per cent. That would be in order to maintain the standard of living in the North at its current level, which is between 10 per cent and 20 per cent higher than in the Republic, it said.