Brexit: a referendum on Ireland’s future

If anywhere can claim to be ground zero for the Brexit debate it's Newry. The town's self-image, encapsulated in the one-time title of its local paper, the Frontier Sentinel, has always been tied to its sense of occupying a space in between, on the edge. The Border cuts through the countryside just a few kilometres to the south of Newry, and in recent decades it has been at the root of the resurgence of the Co Down town. Now, on the eve of the UK's referendum on continued membership of the European Union, it's a source of increasing concern.

“The risk, I fear, as someone in his early 50s with four sons growing up, is where this takes us,” says Conor Patterson, who grew up in the area. “It’s the unforeseens, the idea of losing all the gains we have made over the last 20 years.”

Partition wrought a heavy toll on Newry’s economy. The decline in trade between Dublin and Belfast turned it from an important hub with a vibrant port into virtually a dead end, cut off from a large part of its hinterland, almost overnight.

Patterson’s father was from Newry and his mother from Dundalk, Co Louth. The family’s regular trips through heavily fortified south Armagh and across the Border during the Troubles would drive home “just how tight that Border really was,” he says.

Even before the IRA ceasefires of the 1990s, however, the crossing points had begun to open up thanks to the Single European Act and the removal of customs barriers between the North and the South.

“The Border as a barrier was progressively dissolving,” says Patterson. “The ceasefires followed, and the negotiation of the Good Friday Agreement. But the change to the Border is in my view attributable to the role of the EU.”

Whatever is the greater influence, the dividend to Newry is clear to see. The jobless rate in this former unemployment black spot fell to less than 5 per cent by 2008, a time when house prices were rising faster than almost anywhere else in the UK. The economic downturn hit Newry, but the effect was mitigated by cross-Border trade, as a favourable exchange rate and VAT increases in the Republic helped to attract southerners across the Border.

“The whole proposition was trans-frontier,” says Patterson, who is executive of Newry & Mourne Enterprise Agency. “It’s my view . . . that without that liberalisation of movement we would not have had a sniff of the economic turnaround the way we did.”

The timing of the referendum is still unclear – it is scheduled to take place by the end of 2017 but could happen as early as this summer – but the debate in Northern Ireland is just beginning. The SDLP, the Alliance Party and Sinn Féin will campaign for the UK to stay in; neither of the two main unionist parties, the DUP and the UUP, has declared its position yet.

People in Northern Ireland might have particular reason to be preoccupied by the potential effects of a Brexit, but the Republic, too, could have a great deal riding on the result. Unlike the Scottish independence referendum, on which the Government maintained a studied silence, Irish Ministers have been vocal in arguing that a Brexit would damage Ireland’s interests.

In a speech to business leaders in London last month the Taoiseach described the prospect of a UK exit as “a major strategic risk to Ireland”. Minister for Foreign Affairs Charlie Flanagan has called it a leap over the cliff into the unknown.

Economic ties

The Government’s concerns stem primarily from the close economic ties between the two states, particularly in two areas.

First, the UK is by some distance the Republic’s largest trading partner, accounting for 43 per cent of exports by Southern firms in 2012. “The key question for us would be the future trading relationship between Britain and the European Union,” says a senior official.

Second, the two countries’ energy markets are deeply entwined: Ireland imports 89 per cent of its oil products and 93 per cent of its gas from its nearest neighbour.

The energy networks themselves are also closely linked: there is a single, all-Ireland electricity market, which functions via a north-south connection; the Irish electricity and gas grids are also bound to the British grids through interconnectors. These links improve security of supply as well as reduce energy prices in Ireland, because British wholesale electricity prices are lower than those here.

A recent report by the Economic and Social Research Institute painted an exceptionally bleak picture of the potential economic impact. It estimated that a Brexit could reduce trade flows between Ireland and the UK by an enormous 20 per cent or more, with ensuing trade barriers also pushing up the prices of UK imports to Ireland.

That’s a worst-case, almost apocalyptic scenario, and one that few experts believe would be allowed to play out. “If a 20 per cent scenario were to come to pass, then we would need some special arrangement to avoid that,” says the official. “It would not be reasonable for a country to suffer that kind of trade setback without some measure to ameliorate it.”

Restriction of movement

For most people in Britain and Ireland the most tangible effect of a Brexit would be new constraints on the freedom of movement that they now take for granted.

A UK withdrawal could open the possibility of restrictions on people moving between the UK and the Republic for work. And given that the EU’s only land frontier with the UK would be in Ireland, it could also mean the reintroduction of passport controls at the Border. At best that would be inconvenient. At worst it would deal a hammer blow to the Border region and severely stymie co-operation between the North and the South, which has developed in many areas since the Belfast Agreement.

Patterson fears the worst. If the UK wants to leave the EU in significant part because of the number of migrants who have arrived on its shores in recent years, “the rational outworking of that is that we have to stop free movement of people”, he says. “The only way to stop free movement of people is to lock the borders in some shape or form, to make it very difficult for people to get in. Whatever way this works, there will be constraints on people accessing the island of Ireland.”

Others doubt that Border checkpoints could be reinstated. “I’m pretty sure there would be a pragmatic approach by the British and Irish governments to finding some kind of way of dealing with potential problems on the Border without going down the road of thinking about a hard Border,” says an Irish official.

Inherent in any risk, as a Brexit is characterised by the Government, is the possibility that it could have a neutral effect or even rebound in your favour. One of the ways Ireland could gain economically is through foreign direct investment (FDI).

If the UK cut itself off from the EU – a market of 500 million people with a combined GDP of €13.5 trillion – Britain would be a far less attractive place for foreign firms to invest in. Research cited by Edgar Morgenroth of the Economic and Social Research Institute shows that EU membership increases foreign direct investment from outside the EU by 27 per cent.

Some foreign firms could well opt to leave a post-Brexit UK. Similarly, British firms might seek a new foothold in the European Union. In both cases the Republic would be well placed to benefit. Morgenroth estimates that the State could attract $6.6 billion of additional inward investment, although he adds that this would be offset to some extent by the reduction in the value of Irish firms’ investments in the UK.

Nature of the exit

The bottom line, however, is that estimates of the economic impact of a Brexit are just that. Nobody knows how much it would cost, because it has never been attempted before. The EU has developed complicated procedures for gaining admission to the club but not a line on how to leave.

“The risk relates to the uncertainty, as opposed to having any clear sense of how things will materialise over time,” says Mary C Murphy, a lecturer in politics at University College Cork. Even the meaning of a Brexit is up for discussion.

For instance, would the UK follow the example of Norway, which remains outside the EU but whose membership of the European Economic Area allows it to stay within the single market so long as it applies the vast corpus of EU laws in its domestic legislation (including rules on freedom of movement)?

Or would it seek to follow the Swiss model, whereby instead of signing up to the entire body of EU laws a state can sign a series of bilateral agreements that add up to the same thing?

Were the UK to follow either the Norwegians or the Swiss, the changes for the Republic would be minimal. At the other extreme would be a complete severing of the UK’s ties with the EU. As the impact of that could be catastrophic for the UK economy, however, it is one of the least likely outcomes.

A far more plausible scenario would be the negotiation of something altogether new, perhaps along the lines of the "privileged partnership" that Angela Merkel, the German chancellor, once broached as a way of binding Turkey to the bloc without giving it full membership.

Either way, a UK No to the EU would take a long time, and a lot of creative diplomacy, to put into effect.

“There will be a period of about two years when there will be an exit strategy put in place for the UK to remove itself from the structures,” says Murphy. It will be a discussion from which the UK will be partly absent, she adds, leaving the rest of the EU to decide how to strike a balance between two imperatives: on the one hand a desire to keep trading with the British; and, on the other, a determination not to reward London for leaving, which could encourage others to follow suit.

Peace process

The discussion may centre on economics, but a UK withdrawal from the EU could also herald an important political-diplomatic realignment for the Republic. The peace process was underpinned by a strong Anglo-Irish relationship that, over the decades, “normalised” through regular contact between politicians and officials on the European stage.

In a chapter in Britain and Europe: The Endgame, published by the Institute of International and European Affairs in February, Tom Arnold and James Kilcourse note Irish concerns that an EU exit would be "a significant geopolitical risk" that could pose challenges for the bilateral relationship and the fragile peace process. A UK detachment could isolate nationalist communities in the North, they suggest.

“A lot of the cross-Border co-operation that currently takes place on the island of Ireland, but also between Ireland and Scotland, takes place currently through EU funding,” says Anthony Soares of the Centre for Cross Border Studies. “If the UK were to leave the EU and no longer have access to that type of funding . . . that would really leave at risk the cross-Border co-operation that takes place at the moment.”

Balance of power

A Brexit could require Dublin to rethink how it positions itself within the EU. Dublin and London may be on opposing sides of the European debate on agricultural subsidies, but they find common cause on free trade, taxation, the internal market, financial services and justice and home affairs – issues on which the two capitals are staunch allies.

A UK departure could put more pressure on Dublin to raise its corporate tax rate, for example. More generally, "the balance of power within the EU would shift to the south and the east, where Ireland has few natural allies on strategically important issues," write Arnold (who as well as being the institute's director general is chairman of the Irish Times Trust, which owns The Irish Times) and Kilcourse.

Many would see that as offering positive side effects for Ireland, by forcing Dublin to forge closer alliances with France and Germany and to adopt a less Anglocentric stance in world affairs.

“In the 1970s, when we joined the then EEC, there was a lot of excitement in the Irish political elite – this was very much Garret FitzGerald’s view of the world – that it meant we were no longer an island behind an island, that we had our own place, independently of Britain,” says James Wickham, an emeritus professor of sociology at Trinity College Dublin. “That idea of being an independent and specific country within what has become the EU has actually watered down a bit over the last couple of decades, because of the growing interdependence with America.”

From the left, Wickham and others argue hopefully that losing the UK as an ally at the European table would ultimately force Dublin to shift its positions on key issues.

“The Irish Government, on issues like the market, employment and social protection, tends to take a neoliberal position,” he says. “What they have consistently done is let the Brits make those arguments and hidden behind them . . . If Britain was not in the EU they would have to come out and make those arguments themselves, which means that the political voices at home that don’t want Ireland to make those arguments . . . would push for a different Irish position.”

Irish in Britain

The Government sees the Brexit referendum as one of the biggest risks that Ireland faces in 2016. A unit has been set up at the Department of the Taoiseach to co-ordinate efforts, and the Embassy in London and diplomatic network around Europe will lead a drive to explain Irish concerns. A particular focus of the public information campaign will be on the 600,000 Irish-born people now living in Britain and the two to three million second-generation Irish.

Irish authorities hope that the UK will vote to remain in the EU, but, as a senior official says, they will also work to contain as much as possible the fallout from a No vote.

“If there was a vote for Britain to leave,” says the official, “then we would have to start thinking very seriously about what kind of relationship we would envisage Britain having with the European Union post-Brexit that would mitigate the impact for Ireland.

“We have managed things before. We would have to be clever, make certain adjustments, ensure our interests are protected in whatever scenario might emerge.”