Britain could be asked to vote on leaving the European Union as early as next year, but what impact would this have in Ireland?

In its recent report, the Economic and Social Research Institute (ESRI) said Ireland should expect to suffer losses of up to €3 billion a year if Britain decides to withdraw.

A British exit, which has become known as "Brexit", would result in lost trade and increased energy costs, according to the research.  

The report indicates that increased trade barriers could have a knock on effect on the prices of UK imports to Ireland, which would result in significant costs from developing connections to European energy sources instead of relying on an independent British market.

A forecasted slowdown in Britain's economic growth - leading to a reduction in foreign direct investment - would also negatively impact on Ireland, the report argues.

It further suggested that a Brexit could lead to restrictions on the free movement of workers between Ireland and the UK, while those who have already emigrated could find that their right to residency would "come into question".

The ESRI says businesses in Northern Ireland and those along the border would be worst hit - there is even the possibility those living along county boundaries could be subjected to border controls.  

Despite a softening of the British government’s position in recent weeks, Prime Minister David Cameron has given a commitment to hold a referendum on the issue in either 2016 or 2017.

Image: Francois Walschaerts / AP/Press Association Images

Speaking on Newstalk Breakfast in the wake of the report's publication, Associate Research Professor at the ESRI Edgar Morgenroth, gave an explanation of the potential losses.

"Best estimate at the moment is that the trade impact of Britain outside of the EU and European Economic Area would reduce exports from Ireland to the UK by something like 20%," he explained. "That’s a very significant impact. If you take the merchandise export at the current level, then 20% would come out at just under €3 billion". 

Britain softens

Cameron had promised ahead of this year’s general election that a referendum would be held on their membership of the EU if his Conservative party won a parliamentary majority, and has since pledged to hold the vote before the end of 2017.

However he has also stressed his preference for renegotiating the terms of Britain’s membership of the EU over an exit, and amid continuing discussions with EU leaders, Cameron has seemed to shift to a more pro-EU stance.

His allies have warned a Brexit might also cost the UK hundreds of millions of pounds and it may not help reduce the record level of immigration the UK is experiencing - a key voter concern, and a central pillar of the arguments being put forward by pro-Brexit campaigners such as the UK Independence Party (UKIP).

British Chancellor of the Exchequer George Osborne's concern is that Britain should not have to bear the cost of bailing out the Eurozone in the wake of the financial crisis, and has gone as far as suggesting Britain was initially included in the Eurozone bailout for Greece "without even the courtesy of a phone call".

Image: Geert Vanden Wijngaert / AP/Press Association Images

Mr Osborne has argued for greater protections for the EU countries that have not signed up to the single currency, saying there needs to be "recognition that the EU has more than one currency and we should not discriminate against any business on the basis of the currency of the country in which they reside".

While he stated that an "ever closer union is not right for us any longer", he too has indicated that he was willing to agree a deal if one can be found.

In response, German Chancellor Angela Merkel said she will do what she can to keep Britain in the European Union, as she is likely concerned about a potential shift in the balance of power in Europe should Britain exit the EU that may not necessarily be in her favour.

Republican reaction

At home, Sinn Féin says the ESRI's findings are "extremely worrying" and has called for the protection of border communities "against any eventuality".

Spokesperson Senator Kathryn Reilly says it is important that Irish people north and south realise the potential social and economic implications of any Brexit, which could include tariffs on trade and the creation of a new customs border between the two regions, which would involve its own costs.

The ESRI research also highlighted that while there is a temptation to assume that there would be free movement across the border, there is no guarantee of that.

Any process by which a Brexit takes place would need to "protect progress on an enormously sensitive political issue" according to the report, while they also added that there's a strong chance that there could be an increase of EU migrants "willing to move to Ireland if the UK is removed as a potential destination".

Sinn Fein Finance spokesperson Pearse Doherty and EU Affairs Spokesperson Senator Kathryn Reilly and Deputy Leader Mary Lou McDonald. Image: RollingNews.ie

Given the effect that a withdrawal from the EU would have on Ireland, Fine Gael TD Sean Kyne of the EU Affairs Committee has suggested that Ireland needs to be involved in the negotiations, even though it is up to Britain to make the final decision. 

Business group urges reconciliation

Meanwhile, the British Irish Chamber of Commerce has backed British and German attempts at reconciliation, saying one must be found to avoid the "very serious consequences for Ireland of a UK exit".

The body warns that the agriculture, food and beverage and base metal sectors would be particularly vulnerable to losses, while Director John McGrane says the current trade between the two islands (worth around €1bn a week) supports more than 400,000 jobs, and many more indirectly.

"What we want to see is an arrangement that says the EU would fully recognise the unique connectivity between Ireland and the UK," he suggested.

However, Mr McGrane has cautioned against assuming the worst, noting the report "is of course hypothetical... as Britain firstly has to complete its negotiations with the EU as to the terms of their future relationship. And then the British people have to vote in their promised referendum". 

David Cameron will need to clarify his position to voters by the end of the year, but for those of us living south of the border this week's report from the ESRI provided an alarming amount of clarity.