Ireland Sets Aside $1.3 Billion to Counter No-Deal Brexit Threat

(Bloomberg) -- Irish Finance Minister Paschal Donohoe laid out a 1.2 billion euros ($1.3 billion) plan to counter the impact of the U.K. tumbling out of the European Union without a divorce deal.

Sketching out the 2020 budget in Dublin on Tuesday, Donohoe said a no-deal Brexit is now the government’s “central assumption,” as tensions between the U.K. and the EU mounted over the Irish border question.

“This does not mean that No Deal is inevitable,” Donohoe said. “But equally we stand ready if it does happen.”

The urgency to come up with Brexit contingency measures has become more acute since the U.K.’s new proposals failed to break a deadlock over what will happen to the Irish border. U.K. Prime Minister Boris Johnson told Germany’s Angela Merkel a deal is essentially impossible on Tuesday.

“In the event of a no-deal, there will be businesses who will need very rapid support to solve cash-flow challenges but there can be no expectation that this becomes a long-term source of support,” said Neil Gibson, EY chief economist. “The money must be used to buy time.”

Ireland is widely seen as the country most vulnerable to such a scenario after the U.K. itself. The budget plan assumes the economy will grow by 0.7% compared with 3.3% should Britain leave with an accord to secure ongoing trade. A no-deal could cost 85,000 Irish jobs, the government has said.

Job Risk

The threat to Irish prosperity comes after the economy has only now fully recovered from the European debt crisis. While the domestic industries which are most vulnerable to a no-deal Brexit account for 11% of total exports, they are responsible for more than half of all direct employment of Irish exporters, employers group IBEC says.

Brexit advocates in the U.K. have long hoped that economic self-interest will eventually force Ireland to blink on the issue that’s holding up the U.K. exiting the EU: how to avoid border infrastructure returning to the island of Ireland. As yet, there’s little sign of that.

Among the measures Donohoe outlined to deal with a no-deal Brexit:

• Borrowing 650 million euros to support agriculture, enterprise and tourism
• 365 million euros for expected increase in welfare payments
• Retaining 500 million euros for possible spending instead of moving it to the state’s so-called rainy day fund

“Today was proof that a booming economy no longer guarantees an upbeat and self-congratulatory budget,” said Gibson at EY. “The intent to provide funding to mitigate adverse Brexit effects was prudent but it will be how quickly and effectively this is deployed that will determine its effectiveness.”

To contact the reporter on this story: Peter Flanagan in Dublin at pflanagan23@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Dara Doyle

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