Yesterday I wrote a piece about Brexit and Ireland – nothing new there – and how the political class in the Republic of Ireland, as represented by the Irish Times podcast Inside Politics, are starting to realise that for all the bluster things are starting to look quite bleak for the Republic of Ireland. Brexit isn’t going to be a bed of roses for the British either but Britain is a much much bigger country, as far as economics and population is concerned, and so have the capacity to take certain actions that can in part ameliorate some of the worst impacts of a no deal Brexit. It won’t be pretty and it won’t be cheap Britain has options open to it that the Republic of Ireland doesn’t. The main problem for the Irish is that they have placed all their eggs in the European Union (EU) basket and appear to have gone out of their way to antagonise the British since Brexit. This doesn’t mean the British didn’t deserve such an approach but it does seem to overlook the geographical and political realities of the situation. It was interesting to hear the Fianna Fail politician on the podcast was taking a much more geopolitical realistic approach and wasn’t trying to increase the animosity between the Republic and Britain.
So what about the possible scenarios that could really test the Republic of Ireland’s relationship with the EU? As I said yesterday there are many and as with all of these things it’s the unknown unknowns which really come and bit you in the arse. However, I would like to explore 2 possible scenarios that may well shine a light on the problems that the Republic may face.
Scenario 1 – No Deal and No Money Brexit.
This is possibly the least likely scenario but the basic elements are this: Britain leaves the EU on the 31st October and they refuse to pay the so called Divorce bill of around £39 Bn to the EU. ( Of course this bill isn’t paid all at once but is stretched over many years into the future until the likes of Nigel Farage has died as it includes payments for his pension.)
The largest single recipient of EU funds is Poland so any shortfall is going to be keenly felt in that country. It would seem that the Poles are looking at the exit of Britain as an opportunity to bolster their power and influence in the EU by supporting the French in their attempt to out maneuver the Germans. So should the Republic of Ireland ask the EU for funds to support them in their hour of need just how forthcoming will the Poles be to reducing their grants to support the Irish in any significant way? This consideration may well play on the French president’s mind as he tries to shape the future of the EU more along the lines that France might want. This doesn’t mean that the EU won’t support the Republic of Ireland but it might not be as straightforward as the Republic might hope – especially if at the same time Scenario 2 is enacted.
Scenario 2 – Britain cuts its corporation tax rates to match the Republic of Ireland.
I am no tax expert so I can’t say I understand how the Double Irish et al works. What is easier to understand is that the Republic of Ireland’s government finances are especially vulnerable to the amount of money they receive from being a tax haven in the Euro Zone of the EU. Now if a much larger country starts to adopt similar policies then there has got to be a likelihood that some of the monies that flow through the Republic may start to flow through that country – especially if that country has one of the most important financial centres in the world under it jurisdiction. So how likely is it that Britain will cut its corporation tax to 12.5 %? I don’t know but Jeremy Hunt as already floated the idea and whomever becomes the next Chancellor of the Exchequer might consider this for two reasons: Firstly it will really, and I mean really, annoy the EU and secondly it can be used as a bargaining chip in any post Brexit negotiations.
If this were to happen and if there were significant flows away from the Republic then this will have a significant impact on the Republic’s finances which they would try and get the EU to help with in some way. Now this whole Double Irish tax scheme has long been a thorn in the side of the EU for some time with the French President being particularly vocal about it and how France is losing taxation income as a result of this. He might find it difficult to fully support the Irish requests unless they agree to significantly change their tax policies – further causing problems for the Irish exchequer. (To get some idea about how all of these things work then take a look at the Leprechaun economics entry on Wiki.)
How impactive would either of these scenarios be on the the Republic of Ireland it is hard to calculate. (Nor is it clear whether either of them would happen.) What is clear is that a no deal Brexit is really going to hurt the Irish a great deal.
The best way to understand the problems that the Republic of Ireland are facing is consider how the illustrations of how gravity affects space time. The Republic of Ireland is stuck in the gravity well of Britain which has a disprotional effect on the Republic. Now the EU is much larger than Britain and so has an even greater effect on both but it is geographically distant from the Republic and the EU is in turn affected by the huge mass of Britain. The Irish have to hope that continental politics don’t get in the way of the what might be seen as essentially a problem for the Irish Sea archipelago.
Bollocks to Brexit indeed.