Irish businesses and policymakers will watch the forthcoming UK general election campaign from behind the sofa. The campaign will surely clarify the UK's negotiating approach to Brexit, an issue of vital national interest for Ireland. The rhetoric of the election campaign will be "out means out", but the reality of how this will be managed is vital for us.
The initial market reaction was that a stronger majority and a new mandate could give the Conservatives more leeway to take a less confrontational approach to the Brexit talks with the EU. Sterling rose on hopes of a softer, negotiated Brexit. However, whether this initial theory survives the inevitably divisive campaign to come remains to be seen.
British prime minister Theresa May clearly sees the opportunity for an increased majority – and all the opinion polls would support this. You could speculate that she is going to the country now before the Brexit talks get under way, as only then will the likely cost of Brexit to people's pockets and jobs start to become clear.
The UK economy has held up surprisingly well after last summer’s vote, with the first signs of weakness only now starting to appear. However, the Brexit talks are about damage limitation and the huge and lengthy challenges she faces may slowly be becoming clear in Downing Street.
Initial spin
What will now be of keen interest to economic policymakers and businesses here will be the signals sent out during the campaign. What are the details of the Brexit strategy which the Conservatives will outline?
Talk this weekend that Britain could hold on to some EU institutions after Brexit suggests that London remains in denial about what might be achieved. But at very least the Conservatives must now be starting to realise that the initial spin that Britain’s exit and a new trade deal could all be negotiated in two years was delusional.
Behind the tough talking, there has been some signs recently that the UK government was willing to make some compromises, which might, for example, make it easier to negotiate a transitional period after it leaves the EU and while a new trade deal is finalised.
The Conservatives will surely be pushed to outline their strategy in more detail during the campaign. It hinges on exactly what compromises Britain is willing to make on key issues such as freedom of movement to ease the path to Brexit and beyond.
The easier Brexit is, the better it will be for Ireland, of course. We need a smooth negotiation, a calm exit and a deal which will allow free trade to continue . . . or something close to it. Huge barriers remain to achieving all this and the EU side is talking tough .
Big opportunity
The Confederation of British Industry (CBI) and the other business lobbies will have been taken by surprise – like the rest of us – by the election announcement. But make no mistake: British business will see this as its last big opportunity to shape the Brexit agenda. And no expense will be spared or opportunity lost in the weeks ahead to highlight the risks to trade and jobs from a hard Brexit.
As ever in Ireland, the immediate focus will be on what this means for sterling. The market reaction after the announcement – based on the view that a stronger majority could lead to smoother Brexit talks – was for sterling to rise strongly against the dollar and the euro. This is good news for Irish exporters, of course, who suffered in the second half of last year from sterling weakness.
You would suspect that the UK currency will ebb and flow during the campaign, with any hard Brexit rhetoric leading it to lose ground. Meanwhile, signals that the new government is willing to take a more pragmatic approach to getting a deal done could underpin the currency.
The issues for Irish business and the economy are the obvious ones: the future of free trade, the Common Travel Area and employment and the Border. But the stakes for Ireland are starting to become clear, particularly with regard to the damage which a hard Brexit could do to rural Ireland, the food sector and smaller exporting SMEs.
Some damage now looks inevitable. The Border will return, in some form. There will, at least, be customs barriers to trade and, at worst, damaging tariffs and quotas. The gap in terms of the potential economic impact for Ireland between a hard Brexit and a softer one is huge. That is why the mandate which Theresa May seeks is of vital interest to us.
