Dealing with the toxic uncertainty of a no-deal Brexit
One thing is certain - a no-deal threatens a nasty economic sucker-punch for 2020
The road outside Newry, Northern Ireland, near the Border with Ireland. We are, for now, only spectators in the Westminster drama, with no way to influence whether a no-deal happens or not. Photograph: Paul Faith/AFP/Getty Images
It is perhaps ironic that the very week UK politicians were voting through legislation to try to stop a no-deal Brexit was the one our Government started to spell out the consequences a lot more plainly. None of these consequences are surprising – though everyone had seemed to hope that if we ignored them for long enough they might go away.
National debate here has been moving on two tracks: we have been talking about Brexit, of course, but also – in a parallel universe – discussing the options for the budget, for a fiver to pensioners and a variety of other spending plans. This week senior Ministers finally started to spell out the consequences, as they try to prepare the public for what might be in store.
Some things have been obvious for a long time, even if the Government has been fudging them. A no-deal Brexit would require checks on goods crossing the Border and the imposition of tariffs. The checks will not all be in place on day one, you would expect, but the heat is on from the European Commission to outline a plan. And as soon as the UK leaves, tariffs will become payable on goods being imported here from the UK – creating extra costs for business and consumers.
Unless Ireland wants to leave the EU single market, then it has to protect it. And so the political consequences are real, because the controls will be real
That much we know. But one of the real problems with a no-deal is the level of uncertainty it will create – the stuff we don’t know, or can only guess at. You cannot simply rip up the trading rulebook overnight and expect it all to work out in a planned or predictable fashion. Add in the huge political and social sensitivities about the Border and the response to checks – anywhere – and the disastrous economic implications for the North and you have a dangerous mix.
And while Border checks may be represented as temporary, we don’t know how long this will all last. Some solution may – or may not – emerge to the border issue in talks after a no-deal Brexit.The EU has said that this will be a perquisite to any new trade deal. But if the Conservatives remain in power and continue to pursue their goal of leaving the EU trading bloc, diverging from EU rules and regulations and striking a new trade deal with the US, then it is not clear how a free-flowing Irish border could be reinstated. Unless the North is carved out and it remains aligned to EU rules – as proposed in the original backstop plan. The DUP would object, but as an election is on the way anyway and the government has lost its majority their influence is waning.
For now, the Irish Government has no choice here – and never did, despite its lengthy obfuscation – and statements that it was negotiating with Brussels on the twin objectives of protecting the single market and maintaining an open Border. Unless Ireland wants to leave the EU single market, then it has to protect it. And so the political consequences are real, because the controls, while they may not be plonked at the Border itself, will be real and the signal this will send is powerful and dangerous.
It is impossible to estimate the short-term impact with any confidence
No choice at all
The alternative for Ireland, of not erecting Border checks would, sooner rather than later, lead to controls on goods coming from the Republic into continental EU ports and airports. This would face us with the choice of trying to keep some half-way membership of the EU single market ( I’m not sure if this would even be possible), or throwing our lot in with the madness that is now the UK’s economic policy by following their rules. So it’s really no choice at all.
Then there is the other great uncertainty – the economic price. Economic models can – and have – looked at the likely impact of tariffs and other trade barriers over a period of years.
But it is impossible to estimate the short-term impact with any confidence. Nothing like this has ever happened before. And so much is unpredictable. What we know is that sectors such as beef, dairy, fishing and some SMEs in areas such as engineering and textiles are particularly exposed. This threatens rural Ireland directly. We also know prices in the shops will go up, especially for foodstuffs.
But the wider impact on economic confidence – a key factor in spending and investment – is difficult to call. These are the known unknowns – there will be some impact, but who knows how much. As the Taoiseach outlined this week, flights will remain as they are for now ( assuming the main airlines meet the relevant EU rules ) but a longer-term deal needs to be done here. We won’t go hungry, but some brands may disappear.
Then there will be unknown unknowns, too. We don’t know what complications will arise as goods move between Ireland and the UK and to and from continental EU markets through the UK. There are bound to be disruptions and knock-ons here for many Irish businesses and for consumers. And the supply chain logistics from tariffs and regulatory changes across the Border will be mind-bending. The essence of a no-deal is that it brings a lot more of the economic costs into a much shorter period of time – and adds a bag of uncertainty. It threatens a nasty economic sucker-punch for 2020.
Yet we are, for now, only spectators in the Westminster drama, with no way to influence whether a no-deal happens or not. There has been talk of us making concessions on the backstop, but the UK government – so far – has not come anywhere near putting a viable proposal on the table. For now, it is not even trying to do so.