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Dublin: 9 °C Sunday 20 April, 2014

Column: What happens to Ireland if the UK exits the EU?

While Ireland has no say over the outcome of the UK referendum, we should already be working on contingency plans in the case of its exit from the union – as we stand to be the worst affected, writes John O’Donnell.

John O'Donnell

Ireland joined the EU in 1973, following in UK’s wake. When the UK goes to vote on staying or leaving the EU in 2017, there’s no prospect of Ireland leaving alongside her. However, if the UK exits, Ireland seems certain to feel the largest effect from any potential UK departure.

THE BRITISH, and the English in particular, have never fallen in love with the European Project. The European Community they joined in 1973 and the European Union they find themselves in now was not the product of UK engineering. It was an economic and pragmatic decision to apply for EC membership, first in 1961 and then again in 1967. The same economic logic applies today and argues for the UK to remain in its loveless but lucrative marriage to the EU.

But one should not underestimate how unpopular the EU is in England. The arrangement represents a pragmatic, not heartfelt, union. The Germans and French saw the EU as a political project, reconciling historic wounds. Smaller countries like Greece, Spain, and most of Eastern Europe saw membership as a return to Europe after decades of isolation and dictatorship.

The UK has never felt the need for either. To the UK, Europe is where Waterloo happened. It’s where Dunkirk and the Somme happened. Europe is not Coventry or Dover or Bristol. For the UK, the purse strings are not attached to the heartstrings, and the EU is taking on ever more political and social powers. The UK wanted merely a European Free Trade Area and set up the still existent EFTA in the 1960s.

But other countries would be affected by a UK exit from the EU, and none more so than Ireland. Economic links between the UK and Ireland are very deep. Ireland joined the EU in 1973 alongside the UK, as its economy at the time was extremely dependent on the UK (Denmark entered at the same time as well for similar reasons). The UK is still Ireland’s largest trading partner. The two countries share a major land border (the only major land border for either state); the UK pitched in over 3 billion pounds for the Irish bailout, despite staying out of the euro. It did not provide similar relief to Spain, Greece, or Portugal.

Two possible scenarios

No member state has ever left the EU so it is hard to know exactly how a Brexit would play out and what the relationship between the EU and the UK would be.

Here are two possible scenarios and what they would mean for Ireland. The first assumes the UK simply downgrades its membership with the EU by falling out of the EU itself, but remaining in the European Economic Area (EEA) or returning to the European Free Trade Area (EFTA) like Norway, Iceland, and Switzerland. The second assumes that the UK and EU do not find a fallback position and the UK falls completely out of the EU without any preferential trade agreement in place.

If the UK manages to move from the EU into the EFTA, much can and will remain the same in terms of trade between the UK and Ireland. The UK would be on the same trade terms as Iceland, Norway, or Switzerland: part of the Common Market, but with little or no say in its own trade policy or import tariffs. Members of the EEA adopt all EU legislation aside from agriculture and fisheries legislation. For the UK, an island nation whose economy is built on trade, not having a say in these vital economic policies such as external tariffs would be unacceptable. While this best case scenario (from our perspective) for a UK exit would see little real change, it may be unrealistic.

Therefore the UK may bounce out of the EU and the Common Market altogether. This is a worst-case scenario. While harmful both to the EU and the UK, which would see trade barriers raised between them, it would be especially harmful to Ireland. There is massive trade between Ireland and the UK. Much of it is seemingly invisible as trade in services such as software, consulting, and professional services. Tariffs on this “invisible” trade could be very detrimental to the Irish economy, as it makes up much of the €50 billion in trade between Ireland and the UK.

The psychological impact

The psychological impact of the UK exit could be much greater. If the UK completely left the EU the major question to arise is how to apply tariffs across an open border? This would almost certainly necessitate putting in border controls between the Republic and the North, to prevent smuggling and enforce the payment of taxes. It would also require border controls on ferries and airlines between the UK and Ireland. It could also see Frontex, the EU border agency, being called in to help police the Irish/UK border, which may not sit well with either the UK or Ireland. However, they may stand down if their presence is not requested.

In the long-term, even more foreign multinationals might decamp from London to Dublin, not just for the low corporate tax, but for full access to the EU Common Market. However, this might be counterbalanced by another long-term threat, the loss of an ally in EU negotiations.

An ideological partner

The UK and Ireland often see eye-to-eye on EU regulation and have aided each other in supporting free trade policies within the EU. Ireland would lose an ideological ally, but also one with linguistic and cultural ties. Ireland without the UK on the Council of Ministers will be more exposed than with a larger and stronger ally sitting with it. It may become ever more difficult to prevent a French-led drive to “harmonise” corporate taxes at the same level across the EU.

Ireland will have no say over whether the UK stays in the EU; it will be down to a UK referendum. But it may be the country most heavily affected. Even should the UK exit, it is in Ireland’s interest to keep the UK bound up in the EEA, and to prevent it from bouncing out of EU trade agreements – and thereby avoiding the worst-case scenario. While Ireland has no say over the outcome in the UK, it should already be working on contingency plans if the worst should happen and reach out to both the UK government and to its EU partners. If a bust up can be avoided, Ireland stands the most to gain. If not, it stands the most to lose.

John O’Donnell is a recent MSc. International Politics student from Trinity College, Dublin. He lives in Dublin and focuses on US-EU relations.

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