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Britain and Ireland: Uncomfortable Companions

Two chess pawns with UK and European flags.

Britain Once Held All the Cards With Ireland. Brexit Turned the Tables.
(The New York Times, Oct. 4, 2019)

This headline caught my attention since my wife and I just returned from a two-week trip to “The Emerald Isle.” While there, we read the Irish Times every day, and one of the lead articles was always about Brexit. Our trip also included visits with Irish cousins, some living in Dublin and some in Belfast, who gave us a firsthand view of the issues.

Brexit: An Overview

As an economic analyst, I have a strong interest in Brexit. But I expect that for many Americans, the discussion of Brexit is fairly low on the totem pole of compelling topics. Brexit is the term used to describe the decision United Kingdom (UK) voters made in 2016 to leave the European Union (EU). The EU is a unified trade and monetary body composed of 28 member countries which have chosen to have open borders with one another, allowing for the free flow of goods, services, and people.

While 51.9% of UK voters chose to leave the EU, there were two blocks of voters who did not: Scotland and Northern Ireland. (The UK comprises four countries: England, Scotland, Wales, and Northern Ireland.) The conundrum of the vote is that Northern Ireland is part of the island of Ireland, making it Britain’s only land border with the European Union. After years of turmoil between the protestants and Catholics of Northern Island, a deal was reached in 1998 termed the Good Friday Agreement (or Belfast Agreement). This created a unified government for Northern Ireland and open borders between Northern Ireland and the Republic of Ireland. Both nations have benefited economically, socially, and culturally; as such, they would like to maintain the status quo. Brexit tears apart the Agreement.

Drama or Farce?

Brexit is a serious issue for citizens of Ireland, Northern Ireland, and Britain, but the 2.5 years of negotiation have often seemed more like farce than drama. In 2016, then-UK Prime Minister David Cameron put his position on the line and lost the vote, leading him to resign. Theresa May then assumed leadership, charged with reaching a Brexit agreement with the EU that the UK Parliament deemed acceptable. After two years passed without an agreement, and with the October 31, 2019, deadline looming, she resigned in early June.

Fast forward to today: Theresa May’s successor, Boris Johnson, promises to leave the EU on October 31 if no deal is reached. From the EU’s point of view, Johnson has produced no credible plan, and he attempted to shut down Parliament only to be overruled by the UK Supreme Court. And Stormont, as the Northern Irish government is frequently called, has been shut down since January 2017 due to disagreements between the two major parties.

What’s Next?

A “hard” Brexit, which is championed by Boris Johnson, would close borders to free migration and the movement of goods. The Republic of Ireland and Northern Ireland reject this position, and the EU supports them—hence the headline!

Time is running out for the British. Though the deadline for a deal is October 31, the British Parliament has voted to require the government to ask for a three-month extension if a deal is not reached by this Thursday, October 17.

The Implications

How are the Irish dealing with the possibility of a British withdrawal from the EU and a closed border with Northern Ireland? My cousins were acutely aware of the issues, but they were taking no steps to anticipate the event. A cousin living in Northern Ireland who has a consulting business sees little impact on his business. A cousin in Dublin who heads the office of an international advertising agency has no plans for any major changes. This wait-and-see attitude may reflect the natural inclination that we can control our destiny. They both expressed concern that a shutdown of the border could lead to militant activities. Meanwhile, the media is reflecting all of the dire consequences of a hard Brexit.

Tourism, Ireland’s largest industry, has been slowing for the past four months. British citizens are the largest block of tourists and a weakened pound is making travel to Ireland more expensive. A hard Brexit would probably make things worse.

There are many other implications for the Irish. For example, residents near the Irish border will look for better prices across the border, reflecting the depressed pound. Of course, to get there they will have to go through checkpoints. Another major issue is the impact on jobs; industries such as agriculture, manufacturing, pharmaceutical, wholesale, and retail are particularly vulnerable. Already business and consumer sentiment has been declining. On a more personal level, there are questions about the need for new passports and driver’s licenses.

Should the U.S. be worried about how Brexit plays out? Probably not. President Trump has discussed a trade deal with Britain if it leaves the EU, but British sentiment seems to be that any deal would focus on the benefits to the U.S. at the expense of the British. Increased market volatility is a possibility. The Dow Jones industrial average dropped 5-6% immediately following the historic referendum in June 2016, but it quickly recovered. The Federal Reserve has explicitly mentioned Brexit uncertainty as one factor weighing on the outlook for the U.S. economy, but there simply is no historical parallel to judge what might happen.

With the October 17 deadline fast approaching, most forecasters expect there will be no deal and that Prime Minster Johnson will ask for a three-month extension. After two years of no deal, can three months help? Probably not.

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