Brexit: A possible economic catastrophe?

On June 23rd, Britain will take a vote that will ripple across the European Union.

Source: Hajar Akl

With 28 member states as of yet, a country as big as Britain will surely have its effect on the EU. However, being close neighbours, Ireland is likely to be hit the hardest.

Not only will we be faced with the possibility of border controls between the North and the South, but Brexit is undoubtedly expected to affect Ireland’s economy.

The Irish economy has been doing relatively well after the crash of 2008, but there is fear that with Britain exiting the EU, the economy could be set back. Dutch bank ING said Ireland would suffer an economic loss in the event of a Brexit, estimating that it could cost the economy an amount equal to knocking 1.1 percentage points off GDP growth before the end of 2017.

Being close neighbours, the Irish and British energy markets are tightly woven together, with Ireland importing 89 per cent of its oil products and 93 per cent of its gas from Britain.

A recent report by the Economic and Social Research Institute was not optimistic on the potential economic impact of Brexit. Trade flows could be reduced between the two countries by a whopping 20 per cent, or even more. Potential trade barriers would also result in the increase of the prices of UK imports.

A recent poll by The Telegraph found 51 per cent want to vote to remain in the EU, and 46 per cent to leave while 3 per cent remain uncertain about what they want. It is a very tight race which makes it hard to anticipate the result.

The series of events to follow should Britain vote to leave the EU depend heavily on the path the UK would take; whether it would still remain in the European Economic Area, or choose to severe ties completely with the EU, although the latter is one of the least likely outcomes.

Without a doubt, the national impact of a Brexit on Ireland is not to be ignored. But how will a Brexit affect the Liberties on a more local level?

Tom O’Connor, an EU politics lecturer at DIT, says the UK leaving the EU will have an effect on local businesses. “If the UK leave, those indigenous Irish companies that export – some presumably located in Dublin 8 – send most of their exports to the UK. And if on leaving, the UK is no longer part of a single market, tariffs will be imposed on the Irish exports.”

Net exports, the difference between imports and exports, are important for a country’s economic growth. A positive figure (exports being higher than imports) means the country is doing well in the sense that there is more output, and more people employed to help produce products to export.

If imports were to exceed exports, it would mean that there is an outflow of funds from the country. The possibility of imposing tariffs on Irish exports would make it more expensive to export goods and services which will have an effect on Irish economy.

And since the UK is still a major buyer of Irish goods, “if the UK goes into recession after they leave, that will bring recession to Ireland,” explains Tom O’Connor.

With a lot at stake, it is still impossible to predict what the outcome of the referendum could be. “Opinion polls are almost 50:50 at present,” says O’Connor. “President Obama helped the ‘remain’ side, but there are still several weeks to the referendum. I predict a ‘remain’. I think people will realise that they would lose economically.  However the ‘leave’ side are better motivated and older and vote, the ‘remain’ side are younger and don’t always vote.”

Even though this referendum has been described by some as “the referendum on Ireland’s future”, it is quite surprising how little awareness there is on the issue. Border controls between Northern Ireland are an increasing concern should the Leave side come out victorious in June’s referendum.

“A big Irish issue is the relationship between the Republic and Northern Ireland,” stresses O’Connor. “Brexit would damage that.”

By Hajar Akl