Whatever the outcome of the EU referendum financial expert Eddie Hobbs believes it will leave a deep divide with serious implications for Ireland.
This is the witching hour, the moment just before Britain’s historic vote on secession from the EU, when Remain advocates will be relying on the convention that, faced with releasing the dark angels of uncertainty, the undecideds opt, in large numbers, for keeping the status quo.
What are the implications after the dust settles when, whatever the outcome, a deep divide about the EU will be its legacy, and what jersey will Ireland be forced to play, green or blue?
The secede campaign has, almost exclusively, rallied around underlying fears of immigration. It’s nothing new. From violence against Irish Catholic immigrants fuelled by the Know-Nothing Party in 19th century to American politics today, stoking fears about job losses, crowded schools, and squeezed resources is hoary old ground for divisive politicians.
The Republican Party’s presumptive nominee for the US presidential race, Donald Trump, is playing the same card against Mexicans and Muslims and, across the Irish Sea, those who have chosen to frame Britain’s EU membership around immigration are appealing to similar insular instincts.
The irony is that, shorn of a steady flow of immigrants, running at a net 350,000, the British economy would experience sub-normal economic growth and long-term damage. However, try telling that to an indebted voter struggling with the costs of a family, a mortgage, taxes, and precious little sign of net pay increases from the lethargic hangover of the global financial crisis.
Half of the immigrants arriving to Britain are coming from outside the EU so escaping the EU free-movement rules will not fully address the problem, meanwhile nearly 40,000 British emigrate yearly, many to the EU. If the British economy was experiencing a sustained purple patch, leading to real gains in net pay and lifestyle for British workers, would next Thursday’s vote be knife-edge? Don’t think so.
The murder of Labour MP Jo Cox isn’t just a reminder to advocates that there are consequences to stirring up hate and fear, but is it enough to prove to be a tipping point? Despite the shrill of negative campaigning, people prefer to rally around positive ideas that appeal to the better angels of our nature and the British are no different — but it is too hard to call, economics is easier.
Britain exports 44% of its goods and services to the EU and gets nearly half of the EU’s net inward foreign direct investment, but the EU exports just 7% to the UK. The Leavers bargain that, outside the EU, Britain can have its cake and eat it. This badly miscalculates the outcome of secession.
Triggering Article 50 procedures would lead, initially, to at least two years of heated negotiations, likely to spill out for several years further and creating a pall of uncertainty over investment in the UK. It is most unlikely to result in a special package for Britain, giving it privileged access to EU markets. The reason is simple and the template is already there.
EU governments are under political threat at home from a growing tailwind behind anti-EU movements. In Holland and Austria, these have captured over a third of electoral support and the National Front in France is tipping over 27%. By contrast, Ukip, led by prominent Leave campaigner Nigel Farage, is on 13%.
To discern how the EU reacts to those who threaten secession and, by extension, undermine its foundations, cast your mind back to Syriza’s lunge and the punishment wrought on Greece, because that wasn’t purely about debt.
Britain is not Greece but the implications of secession from the EU are the same. Strip away the diplomatic language that would accompany exit negotiations and underneath will be a determination to make the exit cost so high as to permanently discourage those toying with following Britain —there will be nothing but disincentive left on the table.
The result, most likely, is that Britain would net a deal little different to a World Trade Organization member. Britain, from an EU perspective, is no Norway or Switzerland, as the German finance minister, Wolfgang Schauble, has already flagged.
British prime minister David Cameron’s strategy of changing the EU from within is sensible but if he has miscalculated and Britain leaves, will the end of his political career prove to be the pivot for fundamental reform of the EU after its inglorious handling of the EU’s own existential challenge? If not, Brexit would spell the beginning of the end for the EU as we know it.
A modest Remain vote is no panacea. It would still leave Britain’s political groups internally split on the EU and, more importantly, it would light the way for anti-EU political movements throughout Europe, which are closely studying the British debate as a template for what is yet to come.
For Britain, anything other than an emphatic stay is likely to lead to fragmentation of political support and reduce the future chances of single- party Government. There is unlikely to be a strong rally in global equity markets even if Brexit risk dissolves largely because the outcome of the US presidential election for the engine room of the world economy is considered to be the next hurdle and because equities are already at high-price levels given the likely sub-normal growth path of major regions.
An exit vote is a different matter — while some of the effects are already discounted by falling bond yields such as 10-year German bunds going negative and by rising gold prices, the price of sterling will be where the first effects can be tracked.
The British currency would need to fall in relative price against the euro and dollar to compensate the expected lower economic growth to boost export competitiveness. The FTSE 100 where 80% of revenues are from outside the UK economy, is likely to be less affected. In the short term an exit would rain on the Irish recovery, creating uncertainty, until a fresh ‘special relationship’ is thrashed out while fighting the vortex of the bigger British exit battle with the EU and where Ireland would be in danger of becoming a pawn.
Those who think in quick fixes, underestimate the slow incremental grind of the EU. Don’t expect a quick outcome that resets Anglo-Irish economic and social relations. One of the first tests would be the redrawing of territorial fishing rights, when we would be expected to wear a blue jersey with a shrunken circle of stars, the green jersey at the bottom of the kitbag.