After David Cameron’s victory, threat of Brexit is the main worry for Ireland

The certainty that Britain will now have a referendum on EU membership is the key economic implication for Ireland of the UK election outcome.

A British exit from the EU would carry clear economic risks for Ireland, so we face some uncertainty in the run-up to the referendum, to which prime minister David Cameron committed himself again in his victory speech.

Planning for how Ireland would deal with Brexit will now be stepped up in a special unit looking at the issue at the Department of the Taoiseach, as well as in many businesses.

There is no doubt that losing a key trading partner from the EU would carry economic cost, even if estimates by the Open Europe think-tank in London – which are that it could cut Irish GDP by up to 3 per cent by 2030 – are by their nature speculative.

The threat of Brexit may create some opportunities, too, for example for IDA Ireland which competes with the UK for investment in some areas.

If talk of Brexit grows, some operations of the 250 international financial firms in London might be lured to the IFSC. In the long term, however, Britain outside the EU could decide to compete aggressively for FDI by deregulating and cutting costs.

Cameron has promised a referendum before the end of 2017, but he could do so as soon as negotiations with the EU on Britain’s future relationship with Europe are completed.

EU summit

The new government’s approach is expected to be outlined in advance of June’s EU leaders’ summit. While the issues involved in the talks may not be technically complex, how quickly something could be agreed politically is unclear.

There is concern in Dublin about the uncertainty for the economy and business in the run-up to a referendum and in the immediate wake of a vote to leave the EU, if that happened.

This would lead to a lengthy period of talks on how Britain’s future relationship with Europe would be managed.

A big issue for Ireland would be whether, in the event of an exit, Britain opted – like other non-EU members Norway and Iceland – to be part of the so-called European Economic Area, allowing the generally free movement of goods, services, people and money to continue. Alternatively it could try to negotiate some kind of bilateral deal with the EU.

However, like EEA membership, this would involve complying with some EU rules and making some budget contribution, which could be politically difficult. A bilateral British-Irish deal would also be possible, but also complicated.

Clean break

A clean British break with Europe would create costs for Ireland, as the UK is our biggest trading partner, taking 13 per cent of food exports and 20 per cent of exports from the services sector, with 30 per cent of our imports coming from the UK.

With €1 billion a week or so in trade between the two countries and a land border, the complications and economic costs for Ireland of Britain leaving the EU and tariffs being charged on imports and exports are many and varied.

Sectors like food, big exporters to and importers from Britain, could be particularly affected, as could thousands of SMEs for which Britain is traditionally the first export market.

The re-election of the Conservatives and the pressure to devolve powers from London due to the big SNP vote could also ensure that the power to set the corporation tax in the North from April 2017 is devolved to the Executive in Belfast. While Cameron does not need to rely on the DUP – or any other party – for support, he may be prepared to show some flexibility on demands for welfare and other cuts in the North, which are required before the corporation tax powers are devolved.

Indeed, the whole question of the future of the union has long- term implications for the North, too, but in the short term all this will be overshadowed by the possibility of Brexit.