Mr. Gunther Thumann:

I thank the committee for the honour of allowing me to be here. I think I am a bit out of the ordinary because I do not represent academia or politics or anything. I am a senior citizen sharing some thoughts from the past. I thank the committee for bringing me forward in the queue. I hope the next contributor will not suffer from this change because we may overlap.

Just a few days ago, on 3 October 2022, the German people celebrated reunification. They were remembering the events that took place in late 1989 and early 1990. At that time, more than 30 years ago, I worked at the International Monetary Fund, IMF. I was sitting on the German Desk, so I was closely involved in the discussions the IMF had with the German authorities during 1990. Moreover, later in the 1990s, I had the opportunity to have several private discussions with then Chancellor Helmut Kohl on the political background of unification. Looking back at that context, I wish to share a few thoughts.

Clearly, German unification is not a blueprint for Irish unification. This is clear. Therefore, I want to be very careful not to overstate any comparisons. Nevertheless, I think the German experience may provide some insights for the committee. More detailed comment will follow on this specific point, so I will leave it to one side. I will instead focus on one particular insight, which is the cost aspect of unification. I will first highlight some insights that I think we can gain from the cost of German unification. I also wish to report on some numerical exercises I did regarding the costs of Irish unification.

Looking back to the cost aspect of German unification, three points stand out. First, costs played little if any role on the political level in late 1989 and early 1990. That may be surprising. Costs were not discussed in the discussions with the IMF. In late 1990, we published an occasional paper that covered all aspects of unification but one will not find costs being discussed, which may be surprising.

Second, after unification had become a reality, costs did turn into a hot topic politically, in academic circles and among the public, especially in West Germany. However, despite all the debate and effort, there was a failure to put a firm number on the cost of German unification. Even today, there is no generally agreed point estimate for those costs. A journalist summed it up nicely in an article published in Süddeutsche Zeitungin October 2012, stating that the price of reunification amounts to between €1 billion and €2.5 billion but, presumably, nobody knows that with precision. Even more recently, in 2019 the scientific service of the German Parliament wrote that the costs of German reunification are difficult to calculate. I thought that would be interesting for the committee, maybe as a bit of a warning not to over-emphasise the cost as it is very difficult to figure it out. As regards the reference to a point estimate, when we look at the ranges the situation is a bit different. Colleagues from the IMF published another paper in 1995 in which they stated the costs were probably between 4% and 5% of pan-German GDP. There is a range and I think it is a reasonable one.

I now turn to what I studied on the costs of Irish unification. It has been suggested that the fiscal deficit of Northern Ireland could serve as a proxy measure but, as Congressman Brendan Boyle pointed out in a report published a couple of years ago to which reference was made earlier this afternoon, the fiscal deficit contains certain expenditure that will not be relevant in a united Ireland context, such as public sector debt interest or defence expenditure, which were mentioned a few times. In the calculations performed by Brendan Boyle, excluding these items reduces the deficit substantially to €5 billion from $9.2 billion. That relates to the fiscal year 2013-14. A footnote here is that those were data available in 2016. If one looks at the latest publications of the Office for National Statistics, ONS, those numbers have changed because of revisions, so there is an additional problem using deficit measures because of statistical revisions. They are roughly €1 billion higher now. More recently, based on the report of Congressman Boyle, I experimented with additional statistical adjustments which resulted in the adjusted Northern Ireland fiscal balance going down even further. One can actually make that approach zero, depending on the detail of how one treats the expenditure. My take from this statistical exercise is that the Northern Ireland fiscal deficit, even with sensible adjustments on the expenditure side, may not be a very suitable measure for the costs of Irish unification. The main and deeper reason is that under unification I would assume that the economic and fiscal structure of Northern Ireland will change, probably significantly so, and this change will be the result of policy implementations in the context of unification. That does not really allow one to use fiscal deficit measures as proxies for unification costs. It is a bit unsatisfactory that I did not make more progress. I was thinking about whether there are other approaches, and there are. I am far over my allotted time, however.