The U.K. referendum on EU membership sent shockwaves across the globe on the morning of June 24, 2016. Brexit is set to have a significant impact on the economic and political stability of the U.K., Europe and the wider world. Investors immediately sought refuge in perceived “safe haven” assets, sending German 10 year bunds to a record low of minus 0.17 per cent. Almost all of Switzerland’s yield curve (excluding the 2064 maturity bonds) was pushed into negative territory. Most significantly, the pound took a major hit against the dollar and has fallen to levels not seen in over three decades. While much of this has been heavily reported across the media, Brexit’s impact on Ireland has not garnered much attention.
Ireland, an EU member and one of the “PIGS” nations that became synonymous with huge bailouts following the financial crisis in 2008/09, has made incredible economic progress since the recession. Brexit, however, puts the country once again at a precarious junction given its strong economic links to Northern Ireland and the reliance on free movement of both trade and people. For instance, the U.K. as a whole accounts for a quarter of all goods Ireland exports to the EU, estimated at €1bn a week by the British-Irish Chamber of Commerce. In turn, Ireland imports 89 per cent of its oil products and 93 per cent of its gas from its nearest neighbour.
The Irish border had been a violent frontier for decades until 1998 where more than 3,600 people died during “The Troubles”, a political and territorial battle. Since then, the border for all intents and purposes has all but disappeared, transforming the economies of both countries and working to create a united Ireland. The return of borders may serve to undermine the positive progress made over the past two decades.
To add to Ireland’s worries, George Osborne, the U.K.’s Chancellor of the Exchequer, has pledged to reduce the U.K.’s corporation tax to below 15% (currently at 20%) to encourage investment in the U.K. despite the business uncertainty looming as a result of Brexit. This may not sit well with Ireland given its key attraction as a tax haven, offering a corporation tax rate of just 12.5%.
The Irish Prime Minister, Enda Kenny, has made it clear that Brexit is “a vital issue for Britain and Europe and a critical issue for Ireland” and urged for continued EU-U.K. co-operation. While no one can say with any certainty how all this will unfold over the next few years, what is clear is the political and economic risks for Ireland are real and present.