Why a hard Brexit must make allowances for our all-island economy
Positions on Brexit are perhaps starting to harden in the EU and UK and the implications are stark for both economies on the island. Prime Minister Theresa May prompted a sterling slump with a speech that set a course for a hard Brexit while Donald Tusk, the President of the European Council, said that the only alternative to a hard Brexit is no Brexit.
While positions may be hardening, details still seem some way off. Meanwhile, the uncertainty that persists is exposing Northern Ireland and Ireland to challenges that have some commentators warning of 'disaster' and 'incalculable consequences'. It's like project fear all over again. In the medium term, the terms of a Brexit deal will have significant implications for Northern Ireland and the Republic. In the here and now, thanks to sterling's slide, many businesses are vexed. Irish exporters are seeing their products cost more in sterling but our local companies are enjoying the benefits of sterling's weakness through better cost competitiveness in euro areas.
I have long been a proponent of making more progress on an 'all-island' economy, to the benefit of all residents (such as the collaboration we have seen in providing children's heart surgery) but the currency fluctuations and potential for tariffs that would likely come from a hard Brexit make that more difficult to achieve.
From an NI perspective, the latest currency fluctuations start to make the result of the vote to leave the EU 'real' in economic terms. The terms of trade between Northern Ireland and the Republic, our biggest trading partner, have recently shifted in our favour as changes in the exchange rate have generated immediate impacts on consumer behaviour, especially in the border region. The weakening of sterling against the euro will see more cross-border shoppers coming north. Northern Ireland retailers may be able to look forward to a successful Christmas trading period if sterling persists at current rates. That said, input costs (fuel, heat etc), indeed anything that NI needs to import, will start to cost more if it is sourced from outside the UK.
A gain for NI on currency movements feels like it could be a hollow gain. The converse of us getting the benefit of sterling's slide is that the south feels the pain in terms of exports to us and the rest of the UK. Where all-island supply chains exist, such as in the food and drink or engineering sectors, Irish producers that struggle to sell into Great Britain could also induce pain on local suppliers that feed into those all-island supply chains.
Some of our sectors are well embedded into an all-island economic system. We can't take a beggar thy neighbour approach to Brexit as far as our relationship with our near neighbours is concerned. We need to work together to ensure a Brexit, however hard it might be, reflects the unique circumstances the island economy finds itself in.