Cantillon: Rating agencies highlight the gloomy Brexit scenarios

Another day, another gloomy Brexit report, this time from credit rating agency Fitch. The view is clear: Ireland ranks among the member states that would lose the most through lower exports to a post-Brexit UK, Fitch finds. Strains on the Northern peace process might also loom. The assessment tallies with many others.

Fitch isn’t the only agency with its eye on the referendum. When it restored an A-grade assessment on Irish debt on Saturday, Moody’s took stock of the potential impact here: “While a UK exit from the EU would have negative repercussions on Ireland, given the close economic ties, Moody’s considers that this risk would be manageable for the Irish economy.”

Moody’s could hardly argue otherwise, having followed Standard and Poor’s and Fitch with an A3 rate. While the hope must be that its assessment proves true, there’s no doubt that volatility would be in store for Ireland if the Leave camp prevails. More in question is the degree of disruption than the prospect of it.

It is, of course, impossible for anyone to predict what might happen. This is particularly so of credit rating agencies, who faltered so spectacularly before the crash. Notwithstanding anticipation that Britain will vote Remain, consensus opinion still suggests Brexit would be a pretty bad thing for Ireland.

One underexplored dimension is the political and policy dynamic within a post-Brexit EU, which would be a diminished force. The fact that Britain shares Ireland’s liberal economic outlook is generally seen to be a boon in the EU setting. This might recede, however.

“Brexit could shift the gravity of EU policymaking toward a somewhat more protectionist dirigiste and socially orientated model, although there is broad agreement between the European Commission and many member states about structural reform priorities,” says Fitch. “Over the long term, this could potentially lead to lower output growth in the EU.”

Few would argue against the “social” in policymaking, but growth is a problem in Europe. It would be but one of many in a Brexit scenario.