The Irish economy faces a potential “tragedy” if the British people vote to the leave the EU in June, Allied Irish Banks chairman Richard Pym has said.
Saying the immediate impact of a “Brexit” would to be hurt Ireland, Mr Pym said Irish people should encourage family and friends in Britain to participate in the referendum.
“There are a very large number of people in the UK with votes in this debate who would be or Irihs origin or will have Irish ancestry... The wider Irish family will have a big role in determining Britain’s future position in the EU.”
Mr Pym would not comment on the likely impact of a “Brexit” on AIB’s profit. “I don’t want to get into profit forecasts. But, as I said earlier, the adverse economic affects on Ireland are such that I discussed.”
In addition, he said the question of whether the vote would intrude on the timing of flotation of shares in the nationalised bank was not for him to answer.
"They are two completely separate decisions. We know the date of the British referendum which is June 23rd, so we will know the answer to that on June 24th. The matter of a possible [initial public offering] of AIB is a matter for the Department of Finance and they make the decision, it's nothing that the board of AIB has any authority in. It is purely a matter for the Minister for Finance," Mr Pym said in an interview with The Irish Times.
“Obviously the people who are making a decision on a future possible IPO of AIB will take into account market conditions and I’m sure they will take into account all factors. But that is a matter fo them.”
He was speaking in Dublin this morning after AIB hosted a debate on the “Brexit” question.
Enormous problems
Former Tory chancellor Ken Clarke, who wants Britain to stay in the EU, said the risk of exit could pose “enormous problems for the UK. “I think it would pose enormous problems for the Republic of Ireland as well and so far most electors in Britain have not been made aware of that,” Mr Clarke told the debate.
The meeting also heard from economist Gerard Lyons, chief adviser to London mayor Boris Johnson, who wants Britain to the leave the union. “The EU has not embraced reform, does not address its problems like youth unemployment or migration and, at its core, the euro is a fundamentally flawed economic idea, held together for now because it is a political project,’’ said Dr Lyons.
Mr Pym, himself an Englishman, said some observers could not get their minds around the very concept of “Brexit” and how it would work in practice.
In his interview, he said Ireland was an attractive base for foreign direct investment and would become more attractive with Britain outside the union.
“The issue is whether the benefits of further investment along those lines would actually exceed the economic pain that would be generated by the other effects of Britain leaving the EU,” Mr Pym said .
“There’s €1 billion of trade each week between Britain and Ireland and during the period where the economies adjust to Britain being outside the EU that trade is at risk. There’ll be a prolonged period of uncertainty and – undoubtedly – reduced investment during that period.
“This is a business argument because companies don’t invest unless the terms of trade are known, no-one is going to make a material investment if they don’t know the terms on which they’ll be trading in the market.”
Immediately excluded
Britain would be immediately excluded from the EU side of the table in the negotiation of exit terms if there was a vote to leave, Mr Pym said. While such talks could continue for up to 10 years, Britain would automatically leave the union after two years even if there was no deal.
“Britain leaves, at which point the terms of trade will be the World Trade Organisation [terms] and Britain and Ireland will have the same trading relationship as Britain does with any distant country with which it doesn’t have a trade treaty – and that would be a hugely disappointing outcome.”
What would that mean for the Irish economy at large?
“With Britain outside the EU, it will fall outside the common farming and fisheries policy,” he said.
“What we don’t know in Ireland is what the British policy will be. So Ireland will be still within the EU wider farm-fishery policy but the British will having their own arrangements, farm support arrangements, farm subsidies and fisheries policy.
“The effects of that are completely unknown. But the British will take a very nationalistic approach to that to benefit their own farmers and fishermen and that is going to be very difficult to adjust to.”
General tariffs
In respect of Irish industrial sectors, he said there was a risk that the WTO general tariffs would apply on trade with Britain. “Whilst they’re not high tariff barriers there will nevertheless be tariff barriers in the absence of an agreement to the contrary,” he said.
Thus the Irish economy would be constrained even though recovery from the crash was not complete?
“The Irish economy has recovered absolutely brilliantly from the recession and the Irish people made sacrifices to make the economic adjustment which have led to the very good situation that is emerging now.” Mr Pym said.
“It would be a tragedy if all that hard work were to be dislocated by Britain leaving the EU and the resulting economic affects on Ireland.”
So what of the impact on AIB itself?
“AIB’s business is predominantly in Ireland. If Ireland is successful AIB will be successful. If AIB is successful we hope to help the Irish economy,” he said.
“AIB and the Irish economy are absolutely linked together and we hope by generating the sort of discussion we’re having in Dublin this morning to increase the debate in Ireland on the potential affects.”
Asked whether the AIB board has assessed the likely impact of a “Brexit” on profits, he said the bank’s directors have been conducting studies on the affects of a vote to leave. “The board has certainly discussed that and will continue to discuss it up until the date of the referendum.”
In the backdrop is a request to all banks from the Central Bank of Ireland to examine whether the system is ready for whatever occurs in the vote.
“I’m confident that all central banks will be extremely well prepared for the immediate effects, and the immediate effects one should expect – dependent on the exact market conditions at the time – are that sterling will come under pressure and obviously that could become a barrier to Irish exporters.”
