May in a squeeze as Brexit increasingly likely to derail

The wheels felt as if they were coming off the Brexit locomotive this week, as it hurtles towards the cliff-edge exit next March that everyone has been bent on avoiding.

Theresa May, the British prime minister, seems increasingly isolated, forced to make significant concessions to hard-line Brexiteers, all the while depending on the support of the Democratic Unionist Party to hang on by her fingertips in key Commons votes.

Such is the sense of chaos emanating from Westminster that there is growing alarm in Dublin and Brussels that the British government may not be able to rein in its more radical elements and limit the damage after all. Taoiseach Leo Varadkar said the Government here would step up plans for a no-deal scenario. “It’s not evident or not obvious that the government in Britain has a majority for any form of Brexit, quite frankly,” he said.

The Government agreed to hire 700 additional customs officials and 300 extra staff to check animals and agricultural produce, while “significant” investment will be needed to upgrade infrastructure at ports and airports.

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Brussels followed suit, telling member states to accelerate contingency plans. Worryingly, for all the steadfast support the EU has provided the Government with over the Border, all that would likely change in the event of no deal.

Varadkar said such a “doomsday scenario” would mean the “commitments of others” would be relied on to prevent a hard border. He said EU officials had provided reassurances on this point, but it remains to be seen how it could be done.

The International Monetary Fund has warned that a no-deal Brexit could reduce Irish economic output by nearly 4 per cent in the long term, at an estimated cost of more than 50,000 jobs. The value of Irish exports of goods to Britain has fallen by 8 per cent this year, while imports are down 6 per cent, according to the Central Statistics Office, raising concerns that Brexit might already be damaging trade.

Boom or gloom?

All this Brexit doom is probably why Minister for Finance Paschal Donohoe has indicated he will be cautious about spending in October's budget despite a seemingly endless flow of positive economic indicators.

The value of the economy hit a record €294 billion in 2017 in terms of gross domestic product, according to this week’s CSO figures, even as headline growth was revised down to 7.2 per cent, from a previous 7.8 per cent.

Following criticism of the Republic’s GDP figures, however, the CSO developed a new measure, called modified gross national income, which strips out activity associated with multinationals. By that measure the economy was valued at €181 billion.

Despite Donohoe’s words, he is set to widen his search for consultants to advise on remuneration at bailed-out banks, in a move that could pave the way for a return of bonuses a decade after the financial crash.

More generally, the IMF warned in its latest World Economic Outlook report of the risk to global growth from “escalating trade tensions” that could “derail recovery and depress medium-term growth prospects”.

That followed criticism by Ibec of the Government’s plan to establish a rainy-day fund. The business lobby group suggested the money should instead be set aside to address the funding crisis in higher education.

Housing crisis

Despite all the jobs and growth, the housing crisis continues to take its toll on many families, and it could get even worse for the Government. According to the Parliamentary Budget Office, which was established last year in response to an OECD report suggesting the Cabinet exercises too much control over budgetary matters, the housing crisis could have longer-term consequences.

It warned that, beyond the human toll, persistently high housing costs would eventually erode the Republic’s competitiveness, with workers demanding higher wages.

At least there does seem to be movement on the supply side, with the property agent Savills predicting a sharp slowdown in house-price growth in Dublin in the coming months, as more properties come on the market.

“Housing completions were up 46 per cent in 2017, and despite weather-related disruptions this continued in the first quarter in 2018, with a 27 per cent year-on-year expansion,” its senior economist Sean O’Malley said.

Indeed, the homebuilder Glenveagh Properties is in talks to acquire enough land for more than 7,000 homes, according to documents tied to its move to raise €213 million through a share sale, which will bring the company’s value to €1 billion.

Technology in the dock

Technology was in the dock again this week, with three separate platforms in hot water for shortcomings.

First, the accommodation agency Airbnb was criticised by the European Commission for a lack of transparency in the presentation of its prices, and ordered to clean up its act by the end of August or face enforcement action.

Then there was the Channel 4 Dispatches investigation that showed trainee moderators at Facebook's Dublin offices being told to leave disturbing content online. Among the material was a video of a sobbing toddler being kicked and beaten by a man. Taoiseach Leo Varadkar said the Government was willing to consider introducing significant fines for online companies that fail to "uphold basic standards of decency".

Finally, Google was slapped with a €4.3 billion fine by the European Commission for abusing its dominant market position with its Android mobile-phone operating system. The largest EU anti-trust fine ever, it represents close to 40 per cent of the company's profits last year.