While we have been concentrating on the immediate consequences of Brexit, the internal tensions that it has caused in the UK may have long-term consequences for Northern Ireland and the rest of the island.
In a new UK parliament, Northern Ireland may have few friends because of the prominence that the hard-border issue has assumed in negotiations. Even more serious, the post-Brexit tensions could result in Scottish independence, leaving Northern Ireland potentially an orphan within a reduced UK. In addition, a future Labour government could consider abandoning Northern Ireland as an expensive problem, just as the Wilson government of the 1970s considered.
The weak economy of Northern Ireland post-Brexit will mean that any of these outcomes could have very serious consequences for its standard of living, because of its dependence on transfers from London amounting to 20 per cent of its GDP. The rise of English nationalism could see some of these funds redirected to equally poor English regions.
One response may be for an orphan Northern Ireland to seek a home in a united Ireland. However, from an economic point of view, this would have unpleasant consequences North and South.
If Scotland leaves the Union it will have to take a share of the UK national debt with it, just as the UK will take a share of the EU debt. The best that Northern Ireland could hope for is that, in return for gradually ending the budgetary transfer from London, a deal might be possible where the North escaped debt-free.
Albatross
If the North came without an albatross of UK debt, then the Northern Ireland deficit to be shouldered by a united Ireland would be €8.4 billion, not €11.4 billion. However, even with this lower sum, if Ireland had to take over funding services in the North, it would reduce gross national income (GNI) in Ireland by over 3 per cent and would reduce Irish consumption by about 8 per cent. This reduction in the Irish standard of living could leave the standard of living in the North around 20 per cent higher than in the South, sustained by transfers from poorer southern households, possibly giving rise to resistance to the idea of unification.
Both the North and the South could pay a very large price for unity in the near future
This would only be the start of the economic problems. If welfare payments in the North were brought to Irish levels, this would probably add another 50 per cent to the cost of supporting the North. In addition, while the North would gain access to the wider EU market, this would not offset the major economic costs of losing the British market, where most of their exports are sold today. The economic costs of leaving the UK would certainly be bigger than the costs for Northern Ireland of Brexit.
In summary, both the North and the South could pay a very large price for unity in the near future. Because the weakness of the Northern Ireland economy is due to its poor human capital, even if action were taken tomorrow, this could take decades to repair. This means that the costs of unification would continue for many years.
Dramatic impact
An alternative, where the North, as part of a united Ireland, drastically cut its services and raised taxes to live within its means, would have an even more dramatic impact on Northern living standards. A cut of the necessary magnitude would see a collapse in the Northern economy, with unemployment rising well above 20 per cent. The result would be that, as in the case of German unification, mobile skilled workers would emigrate, leaving an even bigger problem behind. The social and political dislocation would magnify the economic costs of such an unsustainable option.
The best chance for Northern Ireland of having a prosperous future over the next decade is that future London governments remain sympathetic, continuing to fund Northern Ireland within the UK. If a Northern Ireland administration then used this space to undertake the necessary major painful reforms over the next five years, it would put the North on a sustainable growth path. In turn, this could make Irish unity more economically sustainable for the next generation, if that is their choice. If, instead, they choose to remain in the UK, the reforms undertaken would also be hugely beneficial, rendering Northern Ireland more secure within the Union.
Having escaped the UK in 1922, Ireland today has a strong economic interest in pulling up the drawbridge to prevent further exit that might destabilise the North. The economic cost for Ireland of a break-up of the UK, resulting in an orphan Northern Ireland, could be very large, and the political and social difficulties which it would precipitate would be even greater.
