IRELAND AND THE EU AFTER BREXIT 1902 CXXIX

IRELAND AND THE EU AFTER BREXIT

It would be a brave person indeed who could forecast how the Brexit saga will end. Currently, following the overwhelming Commons’ defeat of the draft agreement Teresa May’s team had negotiated over 18 months with the EU, May has just told Parliament how she intends to proceed. We shall see.

Most media and public attention has focussed on what will happen to Britain after Brexit, with virtual unanimity among commentators that the prognosis is bad, and that Britain faces a tough period after a self-inflicted wound. In Ireland the concern is that in trading and economic terms the country will be hit as hard if not harder than Britain and this quite apart from the issues generated and revived over the Border. Geographically Ireland will be isolated, no longer linked physically to another member state, and uniquely reliant on transit via a third country to access its markets (with trade twice that with Britain) within the Union.

Relatively little attention has been paid to what the EU will look like after Britain leaves. Yet the EU will be a much altered animal after Brexit, politically as well as financially, and not necessarily in ways that will favour Ireland.  Take finances first. An immediate direct effect when Britain leaves will be the shake up in the EU’s finances, whether the exit is hard or soft. A major plank in the Brexit Leave campaign in 2016 was Britain’s position as the second largest economy (15% of total GDP) and the third biggest net contributor to the EU budget, with the dubious assertion that the savings made by not paying Brussels could be used to fund domestic improvements, including Britain’s cash-strapped National Health Service.

The EU’s income is comprised of various levies on each member state, based on the size of the country’s economy. The EU’s expenditure consists in the main of grants back in the form of direct payments to farmers together with various programmes in and grants to the Member States. Even including the special budget rebate secured by Margaret Thatcher, Britain still pays a net €9 billion or so annually, or roughly 13% of the EU budget, behind Germany, with 21%, and France with 16%.  When she leaves, that money will have to be made up by the other nine current net contributors, including Ireland (the other eighteen, chiefly those countries who joined from 2004 onwards, receive more in grants and payments than they contribute).

Ireland became a net contributor in 2014 after forty years of receiving more than she paid in, the cumulative total received of €50 billion plus being of inestimable value in building up the Irish economy and utterly transforming the country. This infusion, and the obvious benefits derived from it, accounts in part at least for the continued popularity of the EU in Ireland. However, the net amounts paid by Ireland since 2014 have been rising steadily – payments in in 2018 were €2.7 billion and the adjustment when Britain leaves will add at least €400 million annually to this. With Ireland facing penalties from the EU after 2020 for not meeting its environmental commitments under the Paris Agreement to counter climate change, it will be interesting to see whether and how the popularity of the EU here will fare.

Moreover, after Brexit the dynamic within the Union will alter. Britain was one of its four major heavy hitters and colouring Britain gone creates a new situation.  The “Solemn Declaration” signed at the 1983 Strasbourg Summit committed the then ten Member States “to progress towards an ever closer union between the peoples and countries of the European Community.” The catalyst for the growth in Euroscepticism in Britain can probably be traced to this Declaration, which developed and grew at a political level in parallel with the actual moves towards “ever closer union” including the European Single Market and the Customs Union in the 1990s.

In retrospect Britain’s decision not to abandon Sterling and join the Euro at the turn of the Millennium was a watershed, a public demonstration that there was a limit to British participation in “ever closer union.” Thereafter Britain acted as an effective brake on moves towards greater integration, securing opt –outs from a number of signature EU policies. These included not signing up to Economic and Monetary Union, opting out of the border-free Schengen area, and opt-outs from the Lisbon Treaty in justice and home affairs legislation.

Equally significant, and most important from Ireland’s point of view, was Britain’s blocking of attempts by the Commission to “harmonise” tax policy in Member States, i.e. to remove from member states their national powers over taxation. Ireland’s Company Tax Rate, currently 12.5%, has long been a target of the Commission; it has also been one of the bedrocks of Ireland’s economic development and prosperity and was certainly vital in attracting inward direct investment, much of it from the USA, over the past half century. The favourable rate has not sat well with the Commission or with some other member states who have accused Ireland of poaching investment and jobs. Recent revelations that multinationals such as Apple were paying far less than 12.5% have not helped.

Having Britain in the same corner over national control of taxation was an undoubted plus for Ireland and, with Britain removed from the scene, pressure on this front will undoubtedly intensify, with Germany and France, very much the major funders of the EU after Britain leaves,  both favouring some type of uniform taxation. Ireland is not alone in wanting to preserve the status quo. Several other smaller member states, particularly from the 2004 Enlargement, are like minded in this regard (I recall the Estonian Prime Minister asking me rhetorically just before accession what else had a small country on the fringe of Europe to offer). One card in our favour could be our very peripherality, which will be more pronounced after Brexit, and could merit special treatment in addition to special sympathy. But with those paying the piper in favour of change, expect some interesting negotiations on this in the future.

Finally, there has already been a rejigging of the seats in the European Parliament to deal with the loss of Britain’s 73 seats. The size of the Parliament will be reduced from 751 to 705, with 46 of Britain’s seats being reserved for future new member states, and the remaining 27 divided up among some of the existing members (Ireland will gain two seats, to thirteen). Consider. Unless Norway or Switzerland apply to join the EU (unlikely) or Britain reverses Brexit (!) the only potential new member states are in the Balkans or Eastern Europe (Serbia, Montenegro, Bosnia, FYROM, Ukraine, Moldova, Albania).

Further enlargement like this could take decades, and may never happen in several cases. But it represents a further shifting of the balance within the EU away from the countries located to the West. Britain’s departure will leave a big hole in this regard and accentuate the growing hegemony of Germany. In a column some years back I wrote of the gradual emergence of a European super state, built around Germany. Thanks to Brexit this may happen sooner rather than later.

END

23/1/19

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