Punishing Ireland’s economy will backfire on Brexiters
London’s strategy of inflicting as much commercial damage as possible is unjustified
The Irish are now over 25 per cent richer than their UK counterparts © Bloomberg
August 18, 2019 2:09 pm by David McWilliams
Brexit has turned into a hostage situation. Boris Johnson ;is the kidnapper, Ireland is the captive and the backstop is the ransom. The British message to the EU is, “Drop the backstop or we’ll kill the hostage in a no-deal shootout”. Doubtless the UK could inflict much harm on Ireland, particularly in agriculture: near 70 per cent of UK beef imports come from Ireland, for example. And crashing out could badly interrupt Ireland’s global supply chain. Nearly half of the 475,000 Irish freight containers of cargo per year going through British ports go to the EU.
That said, the Irish economy is much less dependent on the UK than many Brexiters imagine. Tactically, Dublin knows that “no deal” is only “no deal” for now. The UK must eventually do a trade deal with the EU because 46 per cent of UK exports go to the EU and 53 per cent of UK imports come from the EU. No matter how the hostage drama turns out, and no matter what the political and economic fallout, the UK will be back at the table soon. The more chaos at British ports, the shorter the self-imposed mercantile lockout.
In the meantime, London’s new Brexit strategy is to inflict as much commercial damage on Ireland as possible. Given that Ireland didn’t ask for, or vote in, the Brexit referendum and, in recent decades, has been an impeccable neighbour and a calm, dependable partner in the British-created tinderbox that is Northern Ireland, this new aggression seems unjustified. However British sensitivity towards Irish concerns has never figured highly in Anglo-Irish affairs.
Part of the new British approach has been a relentless campaign to paint itself as the victim of Irish inflexibility, simultaneously emboldened by a Rule Britannia assurance that Ireland can, and will, be brought to heel. This unstable combination of whingeing victimhood twinned with pompous self-regard has characterised much of Britain’s negotiations thus far. What has been absent are economic facts.
Here they are. In 1953, when Winston Churchill was prime minister for the last time, 91 per cent of Irish exports went to the UK. Today, that figure is 11 per cent and falling. Far from being the poor, dependent outpost relying on British largesse — as depicted by Brexiters — the Republic of Ireland is an outward-looking, dynamic, trading entrepot. Today, Irish firms in the UK employ more people than UK firms in Ireland.
Small countries must overcome the tyranny of geography. They live and die by the quality of their strategic thinking. Part of the Irish strategy in joining the European Economic Community was to break its dependency on the UK, seeking new markets in richer, continental Europe. And Ireland has been far more successful in diversifying from the UK than the UK has been in diversifying from Ireland. Today, little Ireland remains the UK’s fifth largest export market. Britain exports more to Ireland than it does to China with its population of 1.4bn. Furthermore, the UK runs a large trade surplus with Ireland — in fact, its second-largest trade surplus after the US. Strangling Ireland would hurt UK business much more than the other way around.
Ireland buys more from Britain because Ireland is much richer. Rich people buy stuff. On a conservative estimate, the Irish are now over 25 per cent richer than their UK counterparts. Irish income per capita rose from €13,934 in 1995 to €40,655 in 2018 — growth of 192 per cent. In contrast, UK income per capita rose from £21,716 in 1995 to £30,594 in 2018 — growth of roughly 41 per cent. Ireland is growing nearly five times faster than the UK every year.
Ireland is also a far more globalised economy. When Britain pulled out of Ireland, it took its capital too. It’s taken us a while to catch up, but eventually we deployed fresh American capital by using our tax system, transforming the economy. This export-orientation ensured that Ireland is today a formidable trading machine. Based on the most recent data, the value of all goods and services exports per employed person in Ireland was €126,630 per year, compared to just €17,627 in the UK. Total trade in Ireland was 178 per cent of Ireland’s gross domestic product, which was significantly higher than the EU overall (77 per cent) and the UK (54 per cent). If there is a Singapore of Europe, it wears green not red, white and blue.
As Ireland and the UK are in competition with each other for mobile capital and talent, arguably Brexit will be positive for Ireland. Which looks more attractive, the country that is open to everyone, with fully free access to the EU and no barriers to work, or the country that needlessly erects tariffs and borders against the trading bloc with which it does half of its trade?
Ireland can’t stop the UK if it intends to go down this route, but the EU single market and customs union are far more important for us. We understand the yearning for sovereignty, identity and independence, believe me. But just one piece of advice: the first 70 years are the hardest, after that it gets easier.
The writer is an economist, author and broadcaster