The bookies were convinced the United Kingdom would vote to remain in the European Union. And as the results came in on Thursday night, it looked like they were right. London, Scotland and Northern Ireland were voting ‘Remain’ and Nigel Farage was on television conceding defeat. But then it all changed – borough after borough across England and Wales was voting to ‘Leave’.
By early Friday morning, it was clear the bookies had, in fact, called it wrong, and the UK’s 41-year membership of the EU was coming to an end.
Thursday’s UK vote to leave the EU is a damning indictment of the disconnect between the European project and its citizens. A disconnect seen in the EU’s vindictive response to Ireland’s banking woes, and in the snippy responses of some senior European figures to Brexit.
Thursday’s vote should also sound a warning on the dangers of inequality and of disempowering citizens. The Leave vote was higher in boroughs with lower education, lower earnings and lower tendency to travel abroad.
In absolute terms, globalisation may be working for these people (in fact, the Leave vote was stronger in areas that exported more to the EU). But in a world where 65 people now own over half of all global wealth, it certainly isn’t working in relative terms. The EU is a symbol of globalisation, and it was rejected.
Brexit should serve as a wake-up call for the European project, but it also presents very real political and economic risks to Ireland.
Let’s start with the political. About 400,000 people born in the Republic now live in the UK – more than the populations of Limerick, Cork, Galway and Waterford cities combined. Any new geo-political gap between our two nations is bad news for these people. Hopefully, it’ll amount to no more than short-term uncertainty. It could, however, become a real nuisance if barriers are created to free travel.
It’s also not impossible that we’ll see restrictions on work, social protections or access to public services. The Irish and British people enjoy a special relationship, but it’s exactly these sort of restrictions that many who voted Leave want to create.
Brexit poses a myriad of other political risks: the potential for a reappearance of a ‘hard’ border between the North and South – something that could not but set back integration efforts on the island; and the risk to EU-funding for all sorts of projects between the UK and Ireland, from transport links to cultural programmes to scientific research.
And then there’s the economy. With a billion euro of goods and services moving between the countries each week, the UK is our biggest trading partner. It accounts for a whopping 40pc of our food exports. Brexit means a weaker sterling, which fell precipitously on Thursday morning. As sterling falls, the cost of Irish goods and services to UK consumers goes up – so they buy less.
The same principle applies to tourism. Nearly a quarter of all money spent by tourists in Ireland last year was by UK visitors. As sterling weakens, we become a more expensive place for them to visit – so they visit less.
Irish businesses selling into the UK market took a hammering during the banking collapse, with sterling falling by about 25pc between 2007 and 2009. Then, from 2009 to 2015, sterling strengthened, getting back almost back to pre-crash levels. This has increased competitiveness, driving exports of goods and services, imports of UK tourists, general economic activity and job creation.
This year, however, sterling has been weakening again, with a sizeable drop on news of Brexit. Just as it gained steadily against the euro for six years, it could now begin to steadily weaken – hurting our businesses, our exchequer returns and job creation.
Other risks to Irish businesses from Brexit include increased bureaucracy and bigger gaps in regulatory regimes, which increases costs. The ESRI has estimated that Brexit has the potential to reduce Irish-UK trade by 20pc.
These risks have already been adjusted for by the markets. The UK stock market fell on Friday, as one would expect, with the FTSE falling nearly 4pc. However, the Irish stock market fell by more than twice that amount. By Friday evening, the ISEQ had fallen nearly 8pc, with the ISEQ Financial falling by over 20pc. About €10bn was wiped off the value of listed Irish companies in a matter of hours.
It’s imperative that Ireland reacts quickly and decisively to Brexit. To the Government’s credit, a pretty comprehensive list of priorities was released on Friday afternoon, with proposed actions for the various organs of the State laid out. Enterprise Ireland would be providing support to affected Irish companies, the IDA would be reassuring its client base, Bord Bia would be out and about in the UK, our embassies would be working the phones, our diplomats pressing the flesh.
We are served in Ireland by pretty robust state institutions: they responded well, on average, during the economic crisis, and need to do so again now. The government release contains a lot of well-meaning proposals, but what really matters is that our companies, and our expats, are supported in ways that matter to them.
New bilateral agreements need to be hammered out quickly with the UK. In particular, we need to secure ongoing free movement of people, trade and capital. We need to find ways to help Irish businesses deal with sterling fluctuations. We need to ensure that relationships between the North and South, and all efforts to support integration, continue.
We also need to seize the opportunities presented by Brexit. It should be possible to secure a greater share of foreign direct investment, for example, as we’re about to become the only English-speaking country in the EU.
There are financial services operations in the UK that are likely to move in order to stay in the EU, and we’re one obvious location for them. If we get our trade agreements right, it might even be possible to strengthen our trade with the UK, by ensuring that our agreements are better, and in place sooner, than those with other countries.
With the UK pulling back from the EU, it’s likely they’ll look to North America for closer ties – an economic relationship we’re uniquely positioned to contribute to, and benefit from.
We need to take stock of the European project. But while we’re at it, we also need to act quickly to mitigate the very real political and economic risks Brexit poses to Ireland. If we’re smart, and we use our ability to build relationships, we should also be able to work with the UK to seize the very real opportunities.