The United Kingdom's exit from the European Union could be more costly for Ireland than it would be even for the UK itself, according to an economic study published by a leading London think tank.
The UK could take major "actions" to offset the negative effects of life outside the EU, if it quits, but this "may be more difficult for Ireland" to do because of the Border with Northern Ireland and its dependence on Anglo-Irish trade, Open Europe warns.
Examining the economic implications of a UK exit, Open Europe says: “Perhaps unsurprisingly, given the geographic proximity and high levels of trade, our modelling suggests that Ireland would be hit the hardest.”
In a best-case scenario, where the UK negotiated an “ambitious” free-trade agreement with the EU, Ireland would still see “a permanent loss” of 1.1 per cent of Gross Domestic Product by 2030 – a near €2 billion-a-year loss in today’s money.
However, the situation would be much worse if the UK has to fall back on World Trade Organisation rules. "Ireland could see a permanent loss to GDP of 3 per cent in 2030. This means Ireland would actually be worse off than the UK in such a scenario," the study says.
Meanwhile, a customs border – which would be needed even if a free trade deal is reached to govern zero duty exemptions – would further complicate future Anglo-Irish trade, while a UK exit would mean that Ireland would have to pay nearly €200m more in EU budget contributions per year.
However, Ireland's close links with London and euro zone membership mean it is "well-placed" to broker a deal a deal between the UK and the rest of the EU if the Conservatives win May's general election and David Cameron goes ahead with his referendum plan, it adds.
Pointing out that it is in Ireland’s “self-interest to support European Union reform”, Open Europe says a successful Irish action would be likely to “help reduce the chance of Brexit and to increase the cost of it for the UK”. It also says Ireland has the most to gain from some of the reform London wants.
International prestige
Besides suffering a blow to its international prestige, the EU would lose “the most prominent advocate of liberal, free-trade policies” if the UK were to quit, fundamentally altering the EU’s dynamics and handing “a French-led protectionist bloc large sway over future decision-making”.
"It would be able to command a blocking minority (35 per cent of the voting weight in Qualified Majority Votes at the EU Council of Ministers), while the UK's natural allies such as Germany, the Netherlands, Sweden, Ireland and others would no longer be able to," Open Europe warns.
“How this change to the balance of power would affect the future economic performance of the EU is difficult to quantify. But it is fair to assume that, without the UK, there is a high chance that the rest of the EU would become more inward-looking and less globally competitive,” it says.
Ireland could gain if foreign multinationals chose it if the UK was “unable to secure the access to EU markets that it currently enjoys and foreign firms were looking for alternative gateways into the EU’s single market.
“If, on the other hand, the UK significantly deregulates and liberalises to become an even more open economy . . . it could be an even more attractive location for investment,” Open Europe adds.
