How do you plan in a hiatus? It is now clear that it will be October, at the earliest, before formal talks start between Britain and the EU about its exit. And it could yet be much longer, depending on how things pan out politically in Britain.
From Ireland’s viewpoint, this means no clarity for the Government, businesses, investors or the public on the likely shape of our relationship with our nearest neighbour.We will all be planning in a vacuum.
Of course there are things that need to be reacted to immediately. Sterling’s fall means that 83p is now required to buy one euro versus 76p last week. This brings new challenges to exporters, though with sterling and the euro both weakening the outlook is not clear.
All the signs are of a slowdown in UK growth, which will have an inevitable impact here – exacerbated by the impact on exporters of the sterling fall. Statements by Government Ministers that this will have no impact on the budget seem a bit odd, given that its own forecasts suggest that it could hit growth by over 1 per cent by the end of 2017 and that this impact could be doubled by a 5 per cent sterling fall against the euro.
Lower growth would hit tax revenues. It is very difficult to assess the early hit on our economy. But by claiming it will have no impact in the October budget, Ministers are leaving themselves open to criticism if growth does slow and they do have to adjust the budget figures before the package is presented.
If the short game is hard to predict, the longer-term impact is impossible. David Cameron insisted on Monday that Brexit would go ahead and that there was no going back on the vote. Assuming it does go ahead , the " how" is of vital national interest to Ireland.
Negotiating process
At today’s EU summit, Britain will be encouraged to notify Europe as soon as possible on its intention to leave, thus triggering a negotiating process which is due to take two years, though this could be extended. But there now seems a consensus that Britain cannot be expected to do this until a new prime minister is in office – probably in September – and has had some time to settle in.
This could push a notification towards the end of the year – and there is speculation that the British side could seek to delay it much longer.
To complicate matters, the talks on the terms of Britain’s exit are separate from talks on what its new trading terms with the EU will look like. These are not subject to a two-year deadline. There could be an agreement for the two legs of talks to go ahead at the same time.
However, the exit talks would be likely to finish first, leading to the need for agreement on what would happen in a transitional period before a new trade deal is struck between Britain and the EU.
So for Ireland and Irish businesses, it could be years before the new terms of trade with Britain are sorted out, though of course things will continue as they are until Britain actually leaves. This provides huge questions for companies planning investments.
If you are a UK financial company operating here under a “passport” from the UK – an arrangement under the single market in which financial companies regulated in one market can operate in another – do you continue to invest here? Or if you are a food or construction company selling to Britain, do you invest in a new plant, or hold off and see what happens?
Key reason
Ireland’s best interests would be served if Britain remains a member of the single market, meaning free trade and also, presumably, mobility of people. But if Britain is to sign up to this it would – like Norway – have to sign up to EU rules, which were a key reason put for leaving in the first place.
Meanwhile, bilateral talks between the UK and Ireland on issues such as the Border with the North and the common travel area are not likely to get under way in earnest until the EU talks are up and running.
So Brexit has brought two separate groups of dangerous issues – the short-term hit to growth and sterling and the longer-term threat to trade. And that’s before we even start to look at the impact on the EU.
