Brits out! Fallout for Ireland from Brexit

So it really is Brits Out! – but from Europe, not the north of Ireland.

The fallout from the catastrophic vote by a small majority of the British people (52 percent to 48 percent) to leave the EU will have profound consequences for Britain and for Europe. The full extent of these consequences will take months, even years, to emerge.

But what is clear already is that the European country that could suffer most from Brexit, perhaps even more than Britain itself, is Ireland.

This is because Ireland is so heavily dependent on trade with Britain, far more than other EU country. It is also because of the unique ties Ireland has with its much larger neighbor and because we are the only EU country that has a land border with Britain.

Our special relationship with Britain includes the unrestricted access we have had under our Free Travel Area agreement that goes back to the 1920s which allows Irish people to move freely to Britain, to live and work there. But we are also a member of the EU, which allows citizens from all over Europe to travel freely to Ireland, to live and work here. So despite the assurances that are already being given that nothing much will change for us, the likelihood is that we will face restrictions on travel to the U.K. in the future.

The desire by Britain to limit immigration, particularly from Eastern Europe, can only be achieved if movement between Ireland and Britain is controlled, both at points of entry into mainland Britain and also at the border with Northern Ireland. Anything else is wishful thinking because that is the only way to stop Ireland becoming a back door method of entry for immigrants trying to get into the U.K.

The fact that we had unrestricted access to the U.K. for decades before the EU (or its predecessor the EEC) came into being does not matter. When the EU was widened to include many countries in Eastern Europe, we entered a new era. And now that Britain is leaving the EU and wants to control immigration, our special unrestricted access has to be affected.

The specter of restored passport control checkpoints and customs at the border with Northern Ireland is contemplated with horror by people here who remember the delays and inefficiencies that the border used to cause in the old days. These days when you drive from Dublin to Belfast you only realize you have crossed into the North when you notice that the road signage has changed from kilometers to miles.

Once The Troubles had ended, there was no longer any reason for checkpoints and a visible border, since we were all part of the EU. But that is no longer the case. Now Britain is leaving the EU and a new set of circumstances are in play.

Travel is only part of it. A much bigger worry for us, of course, is the economic fallout.

Even though we now trade with dozens of countries, Britain is still our biggest market, taking nearly 20 percent of our manufactured goods and services and around 40 percent of our agricultural exports.

The idea that Ireland can negotiate a special trade deal for itself with Britain to protect all this is a non-starter. Individual member states in the EU cannot agree trade deals with non-member states. As a member of the EU's Single Market we will be part of whatever trade deal is eventually worked out between the EU as a whole and Britain.

At present, the EU imposes a four percent tariff on manufactured goods and up to 20 percent on agricultural produce imported from outside the EU. If Britain has to pay such tariffs on its exports to EU countries, it is likely to respond with similar tariffs, which would have a serious effect on Ireland.

The alternative is a new trade deal between Britain and the EU, but that is likely to take years to negotiate and we have no idea now what kind of trade deal might be worked out in the future.

The Leave campaign glossed over this difficulty during the Brexit campaign, but it is very real and it is horrendously complicated. Trade deals between countries or blocks of countries typically cover individual goods, products or services, with each trade category requiring detailed negotiations that can – and usually do – take years to complete. That is what we now face and there are no shortcuts, even if the EU and Britain were willing to be positive.

For its part the EU – and particularly France and Germany – is unlikely to want to offer Britain any speedy, attractive trade deals because to do so might encourage anti-EU parties in other EU countries to think that they can leave without any negative consequences for their economies.

On the British side, any attempt to negotiate new trade deals while at the same time ending free travel for all EU citizens and rejecting other EU fundamental principles is likely to fail. The reason is simple: if the EU were to do this, it would be spelling the end not only of the Single Market but of the great project to bind Europe together in an ever closer union.

The challenges Brexit will pose for Ireland are immense. There is now around €1 billion of trade between us and the U.K. every week, and all that will be subject to uncertainty and likely change.

For a start there will be the effect of the fall in the value of sterling which, even after recovering somewhat, was still at its lowest point in 30 years at the start of trading this week. That means Irish businesses will get less for their exports when sales are converted back into euro.

That is only part of the problem. Our food exports to Britain in future will have to compete with produce from around the world, since the U.K. will no longer be limited by the protection the EU's Common Agriculture Policy gives EU farmers through tariffs on food imports.

Ireland will be up against cheap Brazilian beef and all the rest of it, produced at Third World prices (and at Third World standards). Since we export 40 percent of all our farm produce to the U.K. that could be devastating.

It also works the other way, since the truckloads of products that come in here every week to British supermarket chains in Ireland will be cheaper, making it more difficult for home producers of microwave meals and similar ready-to-eat products to compete.

On a wider level, there will be the effect here of the Brexit chaos causing a slowdown in the British economy over the next few years, with the real possibility of a full blown recession in the U.K. as soon as next year. That will heavily impact jobs and growth here.

Already the ESRI (Ireland's leading economic forecasting institute) is saying that Brexit could reduce Irish-U.K. trade by 20 percent. If anyone thinks this is unduly alarmist just look at what happened last Friday after the result of the Brexit referendum was announced.

The London stock market crashed from the initial shock and then recovered somewhat to finish the day four percent down. The Irish stock market fell over eight percent last Friday.

Our recovery and the promises made by the new minority government to reduce our heavy tax burden and spend more on public services are dependent on economic growth. It is this growth – forecast by the government at four percent a year over the next few years – which is supposed to provide the "fiscal space” (extra revenue) to allow us to end austerity in future budgets and still be able to balance the state finances.

The Brexit vote and its likely effects on our economy have now put this in doubt, and the fallout will be felt by everyone here.

There is one upside to all this for Ireland, and that is the possibility that some multi-national companies now based in the U.K. may move to Ireland so they can still be in the EU market and still be in an English-speaking country. Our state bodies like the IDA are already working to contact such companies and sell them on the advantages of transferring their U.K. operations here. This is an opportunity and it may help, but it will never be enough to offset more than a fraction of the overall effect of Brexit on the Irish economy.

Particularly unfortunate in this regard is Northern Ireland, where they have reduced their corporation tax to 12.5 percent to match ours and to attract foreign companies like we do in the south, especially companies that want direct access to the EU market. Since they are now being dragged out of the EU against their wishes (a majority in the North voted Remain) that has been undermined.

Talking about the North leads us on to the political fallout from Brexit, which is potentially just as serious as the economic effect. Although unlikely, there is a possibility that Brexit may not only lead to a break up of the EU, but also of the U.K.

The Scots (who also voted to Remain) are so furious that they are contemplating another independence referendum so they can stay in the EU. But some compromise seems more likely, given that so many Scots don't want to break the U.K. link and they are so dependent on funds from Westminster since their oil revenues collapsed.

One of the worries in relation to the North is that the next British prime minister and the reshuffled Cabinet will be so mired in the complexities of exiting the EU that they simply won't have the time to focus on Northern Ireland. Since the North voted Remain, they may not be that well disposed either, particularly when the problems of what to do about the border begin to emerge.

Given this, the call by Sinn Fein for a border poll (a vote to decide on whether to get rid of the border and create a united Ireland which will be part of the EU) is particularly idiotic, even for that party of dreamers. At present, the North's basket case economy is subsidized by the British taxpayer to the tune of around £5 billion a year (which even with the fall in sterling is still at least €6 billion).

Where is that money to come from? In a united Ireland it would require a massive increase in taxation in the south which would kill the idea stone dead. Even nationalists in the North know which side their bread is buttered on, and would shoot it down in huge numbers if their welfare, housing and health services, etc. were threatened with cuts.

The truth is that the fallout from the Brexit vote is so enormous and so complicated that issues like the North will be way down the priority list. It's a classic case of be careful what you wish for. The Brexiters have got what they wanted but are now waking up to the mind-boggling extent of the mess they have created.

Britain has been a member of the EU for over 40 years, and its economic, financial, and social rules and regulations are legally bound up in a structure that it is now leaving. There is no road map.

On trade, for example, the British civil service has no expertise in negotiating deals since all that has been done at EU level for decades. The legal complexities involved in disentangling Britain from the EU after 40 years are almost too great to comprehend.

The fallout from the mess will affect Ireland more than other countries and in so many ways. For that reason it is likely to occupy this column regularly over the months and years ahead, probably long after the present writer has departed.

But before we get into particular aspects of the fallout for Ireland it is interesting to look at the reasons the British voted the way they did. In many ways the EU has only itself to blame for the mess that has been created, and that is what we will be discussing here next week.