Three reasons why Ireland should fear the UK leaving the EU

The UK has voted to leave the European Union in the historic referendum, official results show as...

11.18 15 Apr 2015

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Three reasons why Ireland shou...

Three reasons why Ireland should fear the UK leaving the EU


11.18 15 Apr 2015

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The UK has voted to leave the European Union in the historic referendum, official results show as the Out campaign passed the winning post with a lead of more than 1 million votes - a margin of 51.8% to 48.2%. 

The pound plummeted to a 31-year low as the market responded to the prospect of the UK splitting from Brussels after 43 years.

Given Ireland's dependance on both the UK and the EU, the Irish economy is expected to be one of the biggest economic losers.


According to research by Open Europe, in a worst-case scenario, where the UK is not in a position to negotiate favourable trade terms with the EU, the impact on Ireland could be a permanent loss of 3.1 percent of GDP by 2030.

Even the best case scenario for the Irish economy would lead to a permanent loss of 1.1 percent of Ireland's total GDP by 2030.

A previous study by the think tank proposed that the largest contraction in the British economy if it left the EU and failed to negotiate favourable trade agreements would only be 0.8 percent.

Earlier this week European Commission President Jean-Claude Juncker ruled out any trade deals between the UK and the EU until 2019, if it decides to leave.

Reacting to the Open Europe report which was published in April, Taoiseach Enda Kenny said that a British exit from the EU would be a "serious concern" for Ireland.

This process is set to be complicated by the fact that David Cameron has ruled out running for a third term as Prime Minister - this means that a referendum is likely to be set against the backdrop of a Tory power struggle, which could push factions within the party towards more populist hardline anti-Europe stances.

1. It would change the balance of power in the EU - putting Ireland in the minority bloc

Open Europe points out that Britain leaving the EU would represent a fundamental shift in the balance of power in the EU.

The UK currently makes up part of a liberal free-trade bloc, along with countries like Germany, the Netherlands, Sweden and Ireland.

An EU without Britain would shrink the free trade bloc and allow countries who support protectionist policies to control decision making.


Open Europe predicts that this would make the EU more "inward-looking" and less competitive - focusing more on protectionism than international trade.

2. More red tape between us and our main trading partner

Although Ireland is growing less reliant on the UK - it is still our primary market. Ireland exports 16 percent of all manufactured goods - and 19 percent of our services to British markets. This rises to 40 percent of all Ireland's food and drink exports.

Ireland also imports 34 percent of its goods from Britain - and 18 percent of its services.

Given Ireland's exposure as a small open economy - and our strong reliance on the British market - disruption to this trade will involve significant costs for the Irish economy.

If the UK leaves the EU and fails to agree an open trade deal - trading between the UK and Ireland would be subject to new tariffs. Given the amount of trade even minimal tariffs would be very costly to Irish businesses.

Irish companies would also be hit by new border costs as a new customs border is created between Ireland and the UK - leading to new administrative costs.

3. More aggressive competition for FDI from the UK

Foreign Direct Investment would also be likely to be affected by a Brexit. This is one area where Ireland could gain - if the UK was shut out of the EU's open market companies could choose to locate in Ireland instead.

On the other hand - if the UK pursues aggressive policies and deregulates, liberalises and offers new tax incentives to compete with EU countries - it could become more competitive and attract more business to the UK.

This is an area that is hard to predict - but significant changes would be guaranteed.

What can Ireland do to minimise the impact if the UK leaves?

If the Britain leaves the EU the current relationship between Sweden and Norway could provide a blueprint for a future deal between Ireland and the UK.

Given the good relations between the UK and Ireland - and the fact that there is a common land border it is likely that a new Common Travel Area would be established between the two states.

This would mean no passport border - and maintain the current free movement of people between the UK and Ireland. Special agreements could be made to minimise the impact on trade - but there would still have to be a customs border - and new costs for Irish businesses.

The Irish government will hold an emergency cabinet meeting at Leinster House this morning and the Taoiseach Enda Kenny will address the media later.

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