Cantillon: can we afford to be a Brexit bystander?

The shadow boxing is over. British prime minister David Cameron has named June 23rd as the date for a rare UK referendum to decide whether it should remain within the European Union on the basis of reforms he has secured, or go it alone outside the trade bloc.

For Ireland the stakes are huge, even if few here have yet to engage fully with the possibilities.

The UK (including Northern Ireland, of course) still accounts for around 15 per cent of goods exports from the Republic. While that is a long way shy of the 50 per cent figure in pre-European Union days, it remains hugely significant.

And, as Davy economist Conall Mac Coille notes, the impact of a Brexit in certain sectors is even more dramatic. Close to half our agricultural exports are still UK bound, he notes, and that's an area that employs 113,000 people.

Any vote to leave the EU would provide a two-year window for the EU and the UK to negotiate a new relationship. But research undertaken last year for the Bertelsmann Foundation shows that, even under a best-case scenario for a "soft exit", with new trade arrangements in place along the lines of the current European Economic Area states Switzerland and Norway, Ireland could see a cut of between 2.1 and 6.1 per cent in income per head over time. Leaving aside the unrepresentative example of Luxembourg, that's the most extreme across Europe – worse even than the impact for the UK itself – according to the study.

In a worst-case scenario where no accord is reached and tariffs of between 4 and 5 per cent are imposed on cross-border trade, the impact on per capita income in Ireland is anywhere from 6.8 per cent to 23.1 per cent, depending on the model used.

Unionist reaction to Taoiseach Enda Kenny’s fairly moderate comments last month in London on potential “difficulties” for Northern Ireland in the event of a Brexit, illustrates the delicate balance an Irish government will have to tread in the debate. Given the potential impact on the economy in the Republic, however, it is unreasonable to expect that we should just stand mutely by.