Facing Economic Disaster, Irish Business Stands Firm on Brexit
Facing Economic Disaster, Irish Business Stands Firm on Brexit
(Bloomberg) -- A no-deal Brexit would be an economic catastrophe for Ireland that would crush exporters, business leaders say. Yet they remain prepared to jump off the cliff with Prime Minister Leo Varadkar if he asks them.
Brexit supporters in the U.K. have long argued that economic self-interest will eventually force Varadkar to blink on the issue that’s holding up Brexit -- how to avoid a new border emerging on the island of Ireland. If the EU and Ireland don’t agree to change the existing agreement, known as the backstop, then both contenders to become U.K. prime minister are threatening to crash out of the bloc without a deal.
In Ireland there’s little sign of pressure from business to fold.
“There is remarkable unity among our members,” Simon McKeever, chief executive of the Irish Exporters Association, said in an interview. “I haven’t been approached by anyone asking us to lobby to dilute the backstop.”
Ireland is uniquely vulnerable to the turmoil enveloping its nearest neighbor. Employers’ group IBEC told lawmakers last month a no-deal divorce would be a catastrophe. It could cost 85,000 Irish jobs, and push the economy into recession, the government warns.
The risk of a no-deal is now significant, Foreign Minister Simon Coveney wrote in the Irish Times on Monday, saying it’s time for companies to ramp up preparations.
Varadkar’s administration has managed to build and sustain a consensus around the backstop, which was designed to keep the Irish border invisible but is toxic in the U.K. as opponents say it shackles the country to EU rules forever.
“We’ve heard very few dissenting voices. There’s been a sense from the beginning that we’ve had the upper hand, it’s been 1 against 27 and we were going to win,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin. “The danger is that this is a game of chicken, and accidents can happen.”
Much of the unity around the backstop is rooted in the government’s message that avoiding a hard border is inextricably linked to Northern Ireland’s peace process. About 3,500 people were killed during the so-called Troubles, and the murder of journalist Lyra McKee earlier this year is a reminder of the stakes.
In February, speaking at a conference, then-Central Bank Governor Philip Lane said a no-deal Brexit would trigger “very severe and immediate disruptive effects” on the economy. Minutes after he spoke, Varadkar veered off script to say the peace process is “much more important than money and jobs.”
“I think the government has done a very good job of explaining why it’s important,” said McKeever, who has said no deal would “screw” the economy. “It’s more than about money, it’s about something bigger.”
None of the U.S. companies which dominate Dublin’s economy are questioning the backstop, Martin Shanahan, head of the IDA Ireland, which is responsible for luring investment to the country, told reporters last month. U.S. companies such as Facebook Inc. and Salesforce.com Inc. flooding into Ireland now employ, either directly or indirectly, about one in five workers in the country.
Most of those companies are reluctant to be drawn in to the discussion publicly. However, they may be more concerned about the prospect of violence erupting again than a no-deal Brexit. They also tend to service the European market from Dublin rather than Britain -- reducing their exposure to new barriers emerging with the U.K.
Unintended Consequences
The consensus isn’t total, however, and some point out the inherent contradiction in the government’s position -- that by sticking with the backstop, it risks pushing the U.K. out of the bloc without a deal. That in turn could create a hard border, which could trigger a return to violence.
The EU has indicated that if the U.K. leaves without a deal, then some kind of border would eventually have to go up on the island. That’s necessary to protect the EU’s single market from products that could enter from Northern Ireland, where EU rules would probably no longer apply.
Speaking at a conference in Dublin on Monday, Varadkar agreed Ireland could face a conflict in its dual objectives of keeping the border invisible and protecting the single market in a no-deal scenario.
“Blind adherence by Ireland to the maintenance of the backstop could prove to be a costly policy if it proves to be the root cause in producing that which it seeks to avoid,” Neil McDonnell, chief executive of the Irish SME Association, told lawmakers last month. “We ask legislators to be imaginative and flexible in their approach to what may be the end-game discussions on Brexit.”
It could be that the chaos of a no-deal exit has to be experienced before a fix can be found, said O’Leary at Goodbody.
“The pressure for compromise may not come until people begin to feel economic pain, and the realization that the backstop has helped to cause the thing it was meant to avoid, a hard border,” he said. “The question then is how long you endure the pain, before you go back to the table.”
To contact the reporter on this story: Dara Doyle in Dublin at ddoyle1@bloomberg.net
To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Emma Ross-Thomas, Andrew Atkinson
©2019 Bloomberg L.P.