Ireland hits Brexit alarm

Ireland hits Brexit alarm

Enda Kenny, Ireland's prime minister, talks in Berlin, Germany, last Tuesday. Mr Kenny said Chancellor Angela Merkel is 'clearly aware of our situation', referring to the border with Northern Ireland and its post-Brexit relationship with EU. (Bloomberg photo)
Enda Kenny, Ireland's prime minister, talks in Berlin, Germany, last Tuesday. Mr Kenny said Chancellor Angela Merkel is 'clearly aware of our situation', referring to the border with Northern Ireland and its post-Brexit relationship with EU. (Bloomberg photo)

The prime minister is under pressure, economists are slashing growth forecasts and companies are warning of Brexit's dire consequences. London? No, Dublin.

The intertwining of trade and finance means no other country is feeling the fallout from the UK's vote to leave the European Union more than Ireland. In the year the Irish marked the centenary of their uprising against British rule, the country remains at the mercy of the unfolding drama in its closest neighbour.

"It's the most serious, difficult issue facing the country for 50 years," said John Bruton, 69, who was Irish prime minister between 1994 and 1997 and later served as the EU's ambassador to the US.

Exporters have warned the plummeting pound will erode earnings and economic growth, just as a recovery had taken hold after the 2010 international bailout that followed the banking meltdown. Irish shares have declined, not least because the UK is the top destination for the country's exports after the US and the biggest for its services.

Meanwhile, Prime Minister Enda Kenny is fending off demands by Northern Irish nationalists for a reunification poll as he comes to terms with the loss of a key EU ally and plotters from his own party try to topple him. Then there's the future of the UK's only land border with the EU.

"The consequences are mind-boggling," said Eoin Fahy, chief economist at Kleinwort Benson Investors in the Irish capital.

Britain and Ireland joined the European Economic Community in 1973. Ireland was drawn in part to escape what one politician called "our gate-lodge attitude towards England". More than four decades later, the two countries remain woven together economically as well as culturally and linguistically.

Ireland uses the euro, yet does about US$45 billion (about 1.2 trillion baht) of trade with the UK. About 380,000 Irish citizens living in Britain were eligible to vote in the Brexit referendum. Britain also chipped in for Ireland's bailout six years ago, despite not being part of the euro region. When Theresa May took over as British prime minister last Wednesday, Mr Kenny was among three leaders she spoke to, along with Germany's Angela Merkel and Francois Hollande of France.

Companies including Netwatch Systems thrived on those ties. From its base in Carlow, southeast Ireland, the video-surveillance company monitors more than 500 sites in cities that include Birmingham, Manchester and London, sending live audio warnings to intruders. Netwatch, which ventured into the UK in 2007, generates about a fifth of its sales there. The 8% slump in the pound against the euro since the June 23 referendum has hurt.

"We were all shocked" by the result, said David Walsh, 51, one of Netwatch's founders. "We've come through a fierce recession over the last eight years and now another knock."

The question is how Ireland's politicians and executives react to what could be a foreign-policy crisis that eclipses the nation's banking collapse and bailout. It's this scenario that prompted Mr Kenny to create a government unit as early as 2015 dedicated to developing contingency plans for Brexit. While proposals involved potential support for some exporters, the government admits it's hard to prepare detailed plans before the exact nature of the UK's new relationship with the EU becomes clear.

The most obvious issue is the 500km border between the north and the republic, stretching from about 100km up the eastern coast from Dublin to Derry in the northwest.

The annual Unionist celebrations last week in Belfast underscored just how delicate the balance still is in Northern Ireland, which stayed in the UK following Irish independence in 1922. There were skirmishes between Protestant and Catholic gangs and a fake bomb tossed from a car window into the path of the parade.

The main parties split over Brexit, with the largely Protestant Democratic Unionist Party backing "Leave" and the mainly Catholic Sinn Fein campaigning for "Remain". The executive they run together in Belfast as a result of the 1998 Good Friday Agreement, which ended decades of sectarian conflict, had no position on the vote.

Political fault lines between the north and south were exposed days after the vote when Northern Irish opposition forced Mr Kenny to abandon the idea of creating an all-Ireland Brexit forum, a misstep that stoked demands from within his own party to set out a timetable for his departure.

Handled poorly, Brexit could "reveal tensions between unionists and nationalists that were always there," said Lee McGowan, senior lecturer in politics at Queen's University Belfast.

With the violence in Northern Ireland largely ended and the single European market embraced, border controls melted away. About 30,000 people a day cross a frontier that was renowned for gun-running during the Irish Republican Army's campaign against British rule.

After the vote, Foreign Minister Charlie Flanagan warned "the likelihood of a hard border" is upper most in Irish minds. Privately, officials are less concerned, arguing that the reintroduction of controls would be in nobody's interest.

Peter Madden travels twice a week from his home in Meath in the south to his job at a garden supply firm in Dungannon in the north. "Am I worried that the border coming back, and there will be guys with guns hanging out of ditches back again?" asked Mr Madden. "No, I don't think so."

Like many, Mr Madden is focused on the economic impact. The pound's drop is rippling across the economy, from exporters such as Netwatch to farmers such as Eddie Punch about 270km away in County Clare, southwest Ireland. With about 40% of Irish food exports going to the UK, agriculture is the area most exposed to Brexit and possible tariffs.

Mr Punch, who has 180 cattle, said Brexit's impact is already being felt as meat processors drive down beef prices. They talk up the negativity to panic farmers into selling cattle more cheaply, said Mr Punch, 47, who also heads a representative group of 10,000 farmers.

"There's gamesmanship all the time. That's ramped up a hundredfold when a story like this emerges," he said. "There have been ridiculous offers, some even saying we won't buy your cattle at all."

As Mr Bruton, the former prime minister, watched the early results come in before forlornly flopping into bed in the wee hours of June 24, Martin Shanahan was in the air.

Sensing a shock, the head of IDA Ireland, the state agency charged with winning investment, returned to Dublin from New York a day early. During the flight, he sent a steward to the cockpit to check the emerging results. Before the vote, the IDA had pitched Ireland to companies including Standard Chartered Plc.

Within hours of the result, the agency contacted thousands off clients, Mr Shanahan said. "We were well prepared," he said.

The plan now is for an advertising drive in Europe and the US to underline Ireland's advantages. Yet, even that's not straightforward.

The UK's withdrawal from the EU could eat away one of Ireland's key advantages for overseas investors -- it's 12.5% corporate tax rate. A 15% rate in the UK has been mooted by the government to help offset the economic impact of Brexit.

Elsewhere, too, the loss of a key member of what one Irish official calls the "Northern liberal club" will be felt keenly. The UK and Ireland have led opposition to EU efforts to harmonise tax laws.

"When both countries joined the EU, by virtue of being part of something bigger, it fostered a relationship based on equal respect," said Mr Bruton.

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