Irish backstop –
The Conservatives have secured a strong overall majority and the UK is now set to leave the EU at the end of January 2020.
The huge political and economic risk to Ireland of a no-deal Brexit would thus be removed.
However more uncertainty – and more deadlines – lie ahead in 2020. Boris Johnson has said he wants a harder form of Brexit and that carries threats for Ireland.
To meet his promise of getting Brexit “ done”, meaning the UK would formally leave, requires Johnson to get House of Commons approval for the withdrawal agreement he struck with the EU.
There may still be some objections in Conservative ranks – and the DUP will be trying to bolster these – but the odds are now strongly on the withdrawal agreement being passed to allow the UK to leave early next year.
In turn this is likely to clear the way for an early general election in Ireland, possibly in February or March.
A crash-out Brexit – without a withdrawal agreement being signed – had always been Ireland’s nightmare, leading to the immediate imposition of barriers to trade with the UK and the need for checks and controls at the Irish Border.
This is why Taoiseach Leo Varadkar brokered the deal with Johnson to remove the backstop from the withdrawal agreement and replace it with a new permanent arrangement, involving some checks in the Irish Sea.
Risks posed to Ireland
Varadkar wanted to get the withdrawal agreement done. It probably now will be, and the risks posed to Ireland by a hung parliament and more uncertainty on the agreement are gone.
However, the withdrawal agreement only covers some aspects of the UK’s departure, and 2020 will be dominated by talks between it and the EU on the future relationship between the two sides, particularly in relation to trade. If you thought the talks on the withdrawal agreement were complicated, you ain’t seen nothing yet.
These talks are due to be completed by the end of 2020, when the UK is due to exit the transition period, a kind of standstill that it enters when it leaves the EU.
Congratulations to @BorisJohnson on his victory in the UK General Election. The Irish government and my department now stand ready to seize the moment and focus on getting #Stormont up and running for all the people and parties in Northern Ireland.
— Simon Coveney (@simoncoveney) December 13, 2019
There is a provision to extend the transition period , but this option must be exercised by the end of June.
Johnson has repeatedly said he will not seek an extension. Doing so would leave the UK under the jurisdiction of EU rules and the European Court of Justice for a longer period and would also require further contributions to the EU budget.
A strong majority gives Johnson more flexibility here as he will not be completely reliant on the hard Brexit lobby. But we have no idea what he might do here.
This has huge significance for the Irish economy and for whether we will head for more uncertainty towards the end of next year.
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It is possible that a less ambitious trade deal might be done by the end of 2020 – a bare-bones deal in the jargon – covering just goods and not services and meaning no tariffs or quotas on trade.
But this would require a deal on fishing rights and access to EU waters– a vital issue for Ireland – as well as UK commitments to what is called a “level playing field”, meaning they won’t cut environmental and workers’ rights. You could easily see how this could run into difficulty.
This creates the risk of another kind of “no-deal” Brexit – one where the UK leaves the transition period without a deal on future trade. This would be a damaging, hard Brexit, and would hit Irish exporters, notably in the food sector, as well as hitting the UK economy hard.
However, unlike if the UK left without signing the withdrawal agreement, it would not threaten a return of checks and controls at the Irish Border.
The new arrangement designed to avoid this, in which Northern Ireland would remain aligned to many EU single market rules and have a unique customs regime, is part of the withdrawal agreement and would apply.
How these arrangements, involving goods being checked as they cross the Irish Sea, will work has still be to be decided and spelled out – and the DUP remains strongly opposed.
So there is both technical and political challenges here for the Government. Ireland needs this to work as it is these new rules and procedures that are intended to protect the EU single market and remove the need for checks and controls at the Irish border.
In the short term, once it becomes clear the withdrawal agreement will definitely pass, then there could be a bit of a bounce in growth and investment here, for a period anyway.
Businesses – and some households – have probably held off some spending decisions, though the latest ESRI quarterly report does point out that despite the Brexit risk, the domestic economy has shown remarkably strong growth. The risk of a short-term sterling collapse would also disappear.
However, after Brexit happens, the challenges ahead will quickly come into focus. As the ESRI pointed out, the kind of trade agreement that Johnson said he wants – and which is referred to in the political declaration outlining the future intentions of both sides – is a free-trade deal similar to what the EU has with Canada.
In other words, the UK wants to sever its current links and any future alignment with the EU trading bloc. This would bring “immense challenges” for both the Irish and European economies, the ESRI said, as it is very different to what currently applies.
So a lot will hang initially on whether Johnson reverses his decision and decides to extend the transition, which would push this risk – and the one of leaving with no trade agreement – out further.
A strong majority reduces his reliance on the hard Brexit lobby and increases his flexibility to extend the transition. What kind of Brexit Johnson actually wants is the big issue now.
The talks on the future relationship will get under way probably in March and be at full steam by April.
It provides another argument for an early general election here – best to have a new government in place by the time the talks get going in earnest.
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