As the UK general election looms, and with a subsequent referendum on Europe highly likely, a UK exit from the EU becomes a real possibility. A new book, Britain and Europe: The Endgame – An Irish Perspective, examines possible future relationships between the United Kingdom and the European Union and their implications for Ireland.
While we believe that the best outcome for Ireland would be for the UK to remain a member of the EU, and that Irish political and diplomatic strategy should be to do whatever it can to secure this outcome, in this extract from the book we analyse the political and economic consequences for Ireland of a UK exit from the EU.
What happens in the UK affects Ireland to a greater extent than developments in any other state. And changes in the UK’s relationship with the EU might affect key objectives of Ireland’s national interest.
Three key priorities for Ireland over the coming five to 10 years are establishing economic recovery, maintaining peace and stability on the island, and keeping Ireland at the heart of Europe.
The Government’s decision to exit the troika programme at the end of 2013 represented a significant turnaround in economic fortunes. The Irish economy in 2014 grew by an estimated 5 per cent, assisted by economic growth in the UK and the US, two major trading partners, a competitive euro exchange rate and strong flows of inward foreign investment.
Looking to the medium-term future, a healthy UK economy is an important factor in sustaining Irish economic recovery. It would not be in Ireland’s interest for the evolving UK-EU relationship to slow UK economic growth or introduce trade barriers that would affect trade flows between the UK and Ireland.
Trade flows between the UK and Ireland in many respects resemble trade flows between regions of a state rather than between two separate states. In the agrifood sector, for instance, the supply chains of the two countries depend on each other’s ingredients and products for their respective national demand. The economies of the two countries are deeply intertwined, but Ireland, as the smaller, less diversified economy, would be disproportionately affected by any disruptions to Irish-UK economic and trade relations.
Changes within the UK could also have an economic impact on Ireland. Greater devolution within the UK could open the door to greater tax powers for Edinburgh, Cardiff and Belfast. The Stormont House Agreement of December 2014 provides for the devolution of tax rates from 2017 to the Northern Ireland Executive under certain conditions. The possible implications of more aggressive tax competition from neighbouring economies will need to be kept under close review.
It is clear that Ireland’s national interest is best served by a UK at the heart of Europe and by maintaining stable political and economic relations across the Irish Sea and with all constituent nations of the UK.
As there is likely to be extreme uncertainty on these two fronts over the coming five to 10 years the challenge for Ireland is to protect and pursue its national interest within this unstable, unpredictable environment. It is in Ireland’s strategic interest to stay as close as possible to both the UK and Europe.
Maintaining strong relations with the UK and its constituent parts over the uncertain years ahead is made easier by the fact that the structures for doing so are already in place. The institutions created by the Belfast Agreement provide a potential means to manage any difficulties arising from change in the UK’s relationship with the EU and internal UK developments.
The British-Irish Council, with its aim “to promote the harmonious and mutually beneficial development of the totality of relationships among the peoples of these islands”, offers a possible avenue.
Common policies, from which individual members may opt out, could be developed on questions of transport, agriculture, the environment, culture, health, education and other matters of mutual interest within the competence of member institutions.
The council could, therefore, become a significant network for the development of regional interests and could enable a more equal relationship between the nations and regions of these islands, particularly if England were given a separate representation. It must be recognised, however, that, in order to be effective, the council would require radical new powers.
The importance of the British-Irish Council would become more obvious to all concerned if the UK became increasingly detached from the EU and if it devolved more powers to its constituent nations. If the council is to play a significant role in the years ahead it will require greater engagement by the London government in the workings of the council.
Since Tony Blair left office the British prime minister has attended only one summit, and this was a historic meeting in Belfast after the restoration of the Northern Ireland Assembly in May 2007. Generally, the deputy prime minister or a secretary of state for Scotland, Wales or Northern Ireland attends on behalf of the London government.
The other heads of administration, including the Taoiseach, the first minister of Scotland, the first minister of Wales and the First and Deputy First Ministers of Northern Ireland usually attend. There is therefore an imbalance between the attention given to this forum by the governments of smaller countries and territories of the two islands and the relative lack of interest by the government in London (not to mention the fact that the largest nation on these islands – England – is not represented at all).
The experience of the Nordic Council demonstrates that states and territories can work together in a multilateral framework despite varying degrees of integration with the European Union.
Members of the Nordic Council cover the spectrum from minimum to maximum EU integration: Finland is in the euro zone, Sweden and Denmark are in the EU but not in the euro zone, Norway and Iceland are members of the European Economic Area, and the Faroe Islands and Greenland remain outside of European economic structures.
The council also highlights the potential limitations of such multilateral co-operation on the fringes of a much larger and more integrated union. As an interparliamentary forum the Nordic Council is weak on the economic and political levels. Its primary role is at the societal level, in the field of cultural co-operation and in bringing officials and politicians from the eight members together on a regular, institutionalised basis.
The direct bilateral relationship between Dublin and London will also be important in the years ahead. The 10-year co-operation agreement announced by the Taoiseach and the British prime minister in March 2012 strengthened the political relationship between Ireland and the UK by establishing regular meetings between secretary generals and permanent secretaries of government departments and through formal exchanges of civil servants.
These personal ties at official level will be crucial to steer the two countries through any potential difficulties arising from a greater British detachment from the EU. The two governments will have a number of common interests in the case of a UK withdrawal, such as continuing to co-operate closely on Northern Ireland, maintaining the Common Travel Area, and seeking to ensure that economic and trade relations suffer minimal disruption.
Staying close to the EU
Ireland remains firmly committed to EU integration, regardless of the ongoing debate within the UK about its future place in the European Union. Speaking at the Institute of International and European Affairs in October 2013, the then minister for European affairs, Paschal Donohoe, said: “Ireland is an integrated and committed member of the EU community. And will remain so. On such a vital topic of national interest we will not be caught in the slipstream of decisions that others make.”
Decisions made in the UK could present Ireland with two dilemmas in its relations with the rest of the EU community. The first is the need over the coming years to support London and its objective of staying in the European Union while simultaneously differentiating Ireland from the UK.
It is in Ireland’s interest for the UK to remain in the EU, and Ireland must do what it can to help secure this outcome.
This could mean backing some of the reforms that the UK is demanding (which, in any case, could suit Ireland very well) and voicing this support at European level. It could mean advising the UK on how to pitch its aims in EU negotiations. It could also mean acting as an interpreter for the UK in other European capitals and articulating clear arguments for continued UK membership of the EU.
Ireland intends to stay in the EU, however, and the assistance it provides for the UK cannot be allowed to alienate other European partners. In 1972 Patrick Hillery, as minister for external affairs, viewed Ireland’s accession to the European Communities as a release from what he called “our gate-lodge attitude towards England”. In some European capitals the distinction between the UK and Ireland is still not very well appreciated. Ireland’s position as a committed EU member therefore needs to be unambiguously communicated across Europe to avoid a perception in other member states of Ireland as the “gate lodge” to the UK.
The second dilemma that Ireland could face in its relations with the EU was outlined above: the potential binary choice that Ireland could face between its nearest neighbour and its continental partners. To avoid this requires careful statecraft, as described by Brendan Halligan in his 2013 Dr Garret FitzGerald Lecture.
Whatever deal is reached between the UK and the EU, it cannot be allowed to impinge either on Irish-UK relations or on Ireland’s place in the EU. This could be a fine line for Ireland to tread. A UK outside of the EU cannot obtain full access to the single market without certain conditionality. If this conditionality proves unacceptable to the UK, obstacles to trade and co-operation could be raised.
In the case of a UK withdrawal Ireland may have to call on its EU partners to allow special arrangements to continue co-operating with the UK in certain areas and to maintain free trade. As a constructive and committed EU member state Ireland would have the political capital and goodwill to argue that it would be impermissible to allow a situation in which it would be disproportionately affected by a UK withdrawal. Ireland’s partners in Europe would almost certainly understand its predicament.
Derogations for Ireland would be necessary to avoid the country being “caught in the slipstream of decisions that others make” and would therefore be more acceptable to Ireland’s EU partners than concessions demanded by the UK.
The nature of these derogations would be dependent on the type of relationship that the UK establishes with the EU. It would be important that they would not be perceived as giving an advantage to Ireland at the expense of other member states.
In the case of a UK that is “half in” (outside the euro zone but remaining a valued member state) or “half out” (outside the euro zone and joining only those initiatives that matter most to it), strengthening the British-Irish Council would still be worthwhile. It could help the regions and governments of the two islands through any turbulence in the years ahead, particularly that arising from greater devolution within the UK. It would also allow for continued co-operation on issues relating to EU membership, such as agriculture, fisheries, research and innovation, transport, energy and the environment.
It would not mean that Ireland’s capacity for independent action in the EU sphere would be in any way restricted. Nevertheless, a more active British-Irish Council operating within the EU could be described as a union within a union.
There would be clear advantages to stepping up co-operation within the British-Irish Council in the case of UK withdrawal from the EU. This situation, in which Ireland would remain a full and active member of the EU, would see Ireland operating within two unions. Like Finland within the Nordic Council, Ireland would have to prioritise its integration in the wider European Union from a geographically peripheral location while maintaining strong bilateral and multilateral ties with its closest neighbours. Finland’s Åland Islands have a special status within the EU that recognises their cultural and economic distinction.
In a similar way Ireland’s relations with the UK (particularly Northern Ireland) may require some derogations from EU law to achieve this balancing act. It would be preferable, however, to avoid this situation in order to maintain the unity of the EU.
An EU without the UK
An important consideration for Ireland in assessing the scenarios of the coming years is what its position might be within a European Union without the UK. The indirect implications for Ireland of a UK exit from the EU merit attention.
Without the UK the EU would lose a strong advocate of an open and liberal Europe. The UK’s strong support for free trade, including initiatives that are important to Ireland, like the Transatlantic Trade and Investment Partnership, would be muted. Ireland would lose an ally in the field of financial services and taxation and would probably face greater pressure from continental partners on the question of its corporate-tax rate. Other priority policy issues, such as services liberalisation and the digital single market, would suffer a blow.
The EU’s common foreign and security policy, which Ireland sees as furthering its foreign-policy traditions and interests, would be diminished. Moreover, the balance of power within the EU would shift to the south and east, where Ireland has few natural allies on strategically important issues.
As a small state with a consequently limited capacity to shape outcomes at European level, Ireland has, since its entry into the European Economic Community, endeavoured to be smart. In an EU without the UK it is evident that the smart course for Ireland would be to enhance relations with Germany and France.
Until the 1950s Irish foreign policy was almost exclusively Anglocentric, and for good reasons. When Garret FitzGerald became foreign minister, in 1973, he recognised that the European Union was the friend that Ireland had always been looking for and that membership could provide a psychological liberation from its “neurotic relationship with Britain”.
As a result he prioritised relations with Germany and France, cognisant that they were the cornerstones of Europe. Later Ireland held the presidency of the European Council, in 1990, and organised two summits on German reunification. Gerry Collins was invited as the first foreign minister to visit East Germany after the fall of the Berlin Wall.
Without the UK Germany would increasingly become the most powerful member state, and Dublin would likely become even closer to Berlin. Similarly, Ireland would capitalise on its good political and cultural relations with France to ensure a closer relationship in a reconfigured EU.
Nevertheless, the EU without the UK would likely be a less comfortable place for Ireland. The advantages of EU membership, however, would continue to far outweigh the costs of following the UK into splendid isolation.
EU membership would continue to enhance rather than restrict Ireland’s sovereignty in a globalised and interdependent world. It would continue to provide opportunities for trade and employment to Irish citizens and businesses. And membership of the euro zone and the single market would continue to boost Ireland’s attractiveness for direct investment from the US, China and elsewhere.
Ireland’s national interests face challenges over the coming years because of decisions that will be taken in the UK. Whatever happens in the UK’s relations with the EU, Ireland must work towards the goal of remaining a committed member of the EU and maintaining strong relations with the UK and its constituent nations and territories.
It will be imperative to build on the current institutional relationships across the two islands to ensure economic and political stability. It may also be necessary, in the case of UK withdrawal, for Ireland to request an arrangement that allows it to maintain bilateral trade and free movement with the UK while remaining a core EU member.
This is an edited extract from Britain and Europe: The Endgame – An Irish Perspective, edited by Paul Gillespie and Dáithí O'Ceallaigh and published by the Institute of International and European Affairs, based on a study by the institute
Tom Arnold is the institute's director general, chairman of the Irish Times Trust and a member of the Irish Times board. James Kilcourse was a researcher at the institute from 2011 to 2014, specialising in political developments in the UK and its public discourse on EU membership