On Thursday the 29th of September, nationally renowned economist Jim Power gave a presentation outlining the consequences and implications of Brexit on Ireland, in the GMIT Castlebar.
Jim Power is an Irish economist and financial consultant based in Dublin. He has appeared on national television, on shows such as Tonight with Vincent Browne and RTE Six One News, and he has a regular column featured in the Sunday Business Post.
He is regarded as one of the top economists in the country.
Brexit is the exit of Britain from the European Union. A referendum took place on 23rd of June 2016 where a slim majority of 51.89% voted to leave the EU, against a 48.11% stay opposition. What the fallout of Brexit will bring is unclear but what can be said with absolute certainty is it will have a massive impact on Ireland and its economy.
Before exiting the EU, Britain and their Prime Minister Theresa May, must invoke Article 50. Article 50 was introduced on December 9th 2009 with the passing of the Lisbon Treaty. It states that “Any member state may decide to withdraw from the union in accordance with its own constitutional requirements” and that “the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union.” On the 2nd of October 2016, Prime Minister May announced that Article 50 will be invoked in March 2017.
Mr. Power opened by giving a brief run-down of where the global economy currently stands, stating that it is growing but well below the rate at which it should be. He made the point that the world economy is affected more-so by non-economic factors than by economic factors, such as terrorism, global conflict and political discord. He continued to talk about the current economic situation in Ireland and how we are very vulnerable to what is going on around us. Mr. Power continued to explain that although we have experienced relatively strong economic growth over the past few years, it has come about from influences outside of the country, such as the fall in oil prices, a weak Euro currency, the ECB interest rate policy and the relative strength of the economies in the US and the UK.
He also listed some of the challenges the Irish economy is facing into, such as the fallout from Brexit, the housing crisis, pay pressures from public sector workers, regional balance as the Greater Dublin area is the main driver of the recovery and the political instability brought about by the recent election of the Fine Gael minority government.
He then briefly gave a description on the Irish tourism sector and its rise but how Brexit may negatively affect it. Ireland’s tourism resurgence has been largely helped by a weak Euro making it a cost effective yet a high quality holiday. Over the past few years the GBP has been very strong against the euro which has pushed tourists towards the Emerald Isle instead of the UK, with our number of overseas visitors growing rapidly. After Brexit the value of the pound immediately dropped and is expected to remain in decline, a factor which could prove very costly to the Irish Tourism sector as Britain will become seen as a good value destination for tourist both British and foreign as international tourists may now choose Britain over Ireland and more of the British population choose to “staycate” and holiday within Britain marginalising the Irish market.
He continued by discussing the deal Britain will strike after Article 50 is invoked.
The EU may offer them a deal similar to the one agreed with Norway in 1994, which has proved very successful as the EU is Norway’s most important trade partner and conversely Norway is the EU’s fifth most important, according to Wikipedia.com. It agreed on the free movement of goods, capital, services and people between Norway and the EU. However the UK maybe unlikely to agree to such an agreement as the free movement of people was a key factor in the British public’s decision to leave the EU and there is a possibility that Britain may cut off all ties to the union, an outcome that would prove costly for the Irish economy.
Despite the British economy holding up quite well since the public made their decision in June, all may not be good in Britain, as Mr. Power explained. The vote doesn’t make much sense from an economic point of view but it was a social decision as the rise of terrorism in Europe has led the British to believe it is safer to close their borders. Foreign Direct Investment into Britain will certainly be hindered, particularly in industries which would heavily favour access to the EU market. London is recognised as a major city for financial companies to invest in but the loss of the European passport will likely drive them away as it will be quite hard to deal with European customers.
However, as Mr. Power explained, Brexit bears both good and bad news for Ireland. In the past few years Ireland has been subject to a weak euro compared to the pound, this lead to an increase in Irish exports as goods became cheaper here, however with the decline of the pound compared to the euro is extremely worrying as British goods now become cheaper and Irish goods are seen to be not as cheap relative to them. Also the weakening of the British economy could also spell bad news for Ireland as our main trade partner will be unable to import as much Irish goods as they do now. According to Mr. Power, Irish exports are already down 7.5% in July from January.
There is also a question mark over the future of Northern Ireland who voted with a 55.8% majority to remain in the EU and who hold the right, by popular referendum to become part of a United Ireland at any point as per the Good Friday Agreement, which was made effective on the 2nd of December 1999. The implications of a United Ireland would be huge as historically Northern Ireland as acted as a burden on UK finances. However the loss of foreign investment, as stated by Mr. Power can be scooped up by Ireland if the government make improvements to our infrastructure particularly in regional cities such as Limerick and Galway, as the cost of setting up in Dublin is quite high.
Power is very much of the opinion that an educated workforce is a key to attracting the investment. Mr. Power concluded his brief on the consequences on Ireland by stating there are many “unknown unknowns” but it’s hard to see too many positives for our economy.
Mr. Power finished his presentation by offering some solutions which may offer a cushion for the Irish economy post-Brexit. He stated that the Irish government must fight for an EU trade agreement with the UK which favours Irish exports to help keep a high level of trade between the two countries, and diversifying trade, by investing in sectors in which will be relatively easy to trade in such as finance and other sectors that can trade over the internet or other means besides physical trade. As an aside he also mentioned that a strong, educated workforce is far more important in attracting investment that a 12.5% corporation tax.
From attending the talk I feel I gained an advanced knowledge of Brexit and a greater understanding of its implications and consequences on an international, British and Irish scale.
1. Presentation notes by Jim Power