Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

A no-deal hard Brexit would arise if the EU-UK negotiations fail to reach an agreement within the Article 50 two-year timeline. This would involve the UK exiting the EU with no successor agreement in place and without a transition period to avoid a cliff edge in March 2019.

In the short term, a no-deal hard Brexit would have a material and real impact on Ireland, which would be asymmetric relative to the rest of the EU. In other words, it would have the largest effect here in Ireland. The shock would likely lead to market volatility, further sterling depreciation and disruption to trade with the UK. This would have negative impacts for consumer spending, investment and competitiveness with potential spillovers to the labour market and public finances. Sectors with strong export ties to the UK such as agrifood, manufacturing and tourism would be especially exposed, in particular at the regional level.

With regard to the impact, my Department’s published research shows the potential impact of a hard Brexit is significant. Joint research with the Economic and Social Research Institute, ESRI, shows that the overall macroeconomic impact would result in the level of gross domestic product being almost 4% below what it otherwise would have been in a no-Brexit scenario after ten years. The level of employment in Ireland would be 2% lower with the unemployment rate nearly 2% higher.

As well as the significant discontinuity and additional costs for businesses arising from the abrupt imposition of tariffs, there would be customs procedures and other non-tariff barriers. Indeed recent reports by the Organisation for Economic Co-operation and Development, OECD, and Copenhagen Economics show that a significant divergence in regulatory standards between the UK and EU would lead to additional economic impacts.

All the existing research assumes no policy changes, which is a necessary, but unrealistic assumption. The best way to deal with the risk of a no-deal hard Brexit is to build up our budgetary capacity and to continue to implement the right domestic policies.

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