Belfast Telegraph

Economic chill from south to get colder in a 'no' vote

The Republic's referendum on the EU treaty could have far-reaching implications for the Northern Ireland economy, says Philip McDonagh

So far, Ireland has been the poster child of the European financial crisis - agreeing, after some modest re-negotiation, to the conditions of the bailout and then implementing a programme of severe public spending cuts.

And all this has happened without the protests and rioting on the streets that we have seen taking place in Greece.

Now the Irish government has surprised even Brussels by announcing that it intends to hold a referendum on the fiscal compact treaty, which already has the support of 25 of the 27 EU member states - the exceptions being the UK and the Czech Republic.

What does this mean for Northern Ireland? Should we just look smugly on and thank our lucky stars we are part of the UK sterling area?

Or should we be worried at the prospect of one of our major trading partners slipping into even more prolonged economic oblivion?

The Irish have always been good Europeans and, before the present crisis emerged, managed to secure significant transfers of funds to promote economic growth and support the agricultural sector.

There have been a few blips along the way, with previous treaties being rejected in 2001 and 2008 before being passed in follow-up referenda.

For Europe, the result of this particular referendum is less critical because it only requires 12 member states to ratify it.

However, as the Irish government readily admits, this is a vote not just on the treaty, but on Ireland's membership of the euro and its access to the associated funding mechanisms.

There are those who see the recent developments in the European financial crisis as a house of cards collapsing in slow motion.

Under the extreme version of this analysis, the euro will disappear, the member states will revert to their own currencies and the European Union will become a loose alliance of states, maybe grouped in two tiers.

In my view, there is too much political capital invested in the European project to allow it to fail completely and what we are seeing is a slow evolution into a more sustainable European model.

The Irish have done the right thing in asking the people to decide if they want to stay onboard with this process.

In any case, the debate is political, rather than economic. But whatever happens politically, there will be economic implications.

There have been some positive signs recently that the Irish economy is beginning to emerge from the long dark tunnel.

Inward investment continues to be attracted to Ireland and recent forecasts for the Irish economy are suggesting modest growth of 0.6% to 0.9% this year and increased growth next year.

It is difficult to see a 'No' vote in the referendum having anything but a negative impact on this economic outlook - at least in the short term.

Northern Ireland has already felt the chill economic winds from the south blowing through our property market and freezing a key export market for our businesses.

Northern Ireland manufacturing exports to the south peaked in 2007 at £1.7bn, but have since fallen back to £1.2bn by 2010.

But it still accounts for one quarter of our total exports.

During the boom years of the Celtic Tiger, there were plenty of job opportunities in the south, but these have now dried up and the young generation of graduates and school-leavers are looking outside the island and voting with their feet.

The fact that we have an unemployment rate of only 7% in Northern Ireland compared with 14% in the south is nothing to be proud of.

The vote in the Irish referendum may not make any difference to decisions on the future of the euro, but it could have far reaching and long-lasting implications for the economy in both parts of the island.

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