The effects of Brexit on the Republic will be "deeply profound" and in the event of no trade agreement being reached with the UK, the State's GDP could be 3 per cent lower, costing 40,000 jobs, the Central Bank has warned.
Ed Sibley, deputy governor in charge of prudential regulation, delivered stark warnings in relation to Britain’s EU exit on Thursday at an event organised by Arthur Cox at the DCU Brexit Institute.
“Brexit could be one of the most significant events to affect the Irish economy and Irish financial services firms in a generation,” he said. “The full significance is almost impossible to predict at this stage.
“Firstly, the decision by the UK to leave the European Union is one that will have knock-on effects for years, even decades, to come. For Ireland, these effects are largely going to be negative and deeply profound.”
Mr Sibley said there were "enormous challenges" ahead, and expressed concern that this view "does not appear to be shared by everyone". The regulator recently wrote to all the insurance companies it supervises to ask about preparations.
“Of the 197 responses we received, 38 companies deemed that Brexit would have a high impact on their business model and 12 a medium impact. The remaining 147 – almost three quarters - think Brexit will have little or no impact on them.
“Given the level of uncertainty and the range of challenges, this is an astounding number. Even in a best case scenario, there is likely to be some major disruption ahead.”
In terms of new authorisations, Mr Sibley said the “large volume” of applications being processed was posing a “considerable challenge” for the regulator.
“The unprecedented level of authorisation activity is necessitating the Central Bank to make hard choices,” he said. “We have increased headcount, recruited heavily and re-allocated senior and experienced resources from other important tasks.”
The reduced access to the UK for Irish exporters may take the form of tariffs on goods sold into the UK. If Britain reverts to trading with Ireland on the basis of world trade organisation rules, agri-food products could face rates “in excess of 30 per cent”.
Any free trade agreement could still represent a “substantial loss” of market access, with exporters facing “considerable challenges”. This would be further aggravated by any negative economic shock to the UK economy by reducing consumer confidence.
“Taking these factors into account, our estimates suggest that in the event of no post-Brexit trade agreement being reached, GDP in Ireland might be around three per cent lower after ten years than under a no-Brexit scenario,” said Mr Sibley.
“This figure could be expected to translate into roughly 40,000 fewer jobs, which may occur largely in particular regions and sectors.” A hard Brexit would also lead to “significant disruption” in the financial services system.
Firms from the UK and Gibraltar accounted for €1.8 billion of non-life and €2.5 billion of life insurance business at the end of 2015.
“The potential loss of EU authorisation will affect the ability of these insurance undertakings to continue performing certain obligations for EU policyholders and will impact the service continuity of contracts concluded before the UK leaves the EU,” he said.
“Without action, there are risks that UK and Gibraltar-based insurers passporting into Ireland will lose their ability to continue to provide insurance cover.”
This would include collecting premiums, making mid-term alterations and negotiating and settling claims on any outstanding insurance contracts, ranging from long-term life insurance policies to annual motor insurance contracts, taken out prior to Brexit.
