Belfast Telegraph

Richard Ramsey: Northern Ireland must put its own economy first as Brexit intensifies

Economy Watch

By Richard Ramsey, Ulster Bank chief economist (@UB_economics)

This month marks two years since the Brexit vote and, in the intervening period, we have become fixated with the relationship between the UK and the EU. However, in many respects what is going on within the EU itself is potentially even more significant, and the next two years could be defining for the bloc.

Our fixation with potential exits from the EU/Eurozone began with Greece (Grexit) around 2010 and continued with Ireland, Portugal and even Spain (Spexit).

The Italian president of the European Central Bank (ECB), Mario Draghi, sought to avert such crises with his "whatever it takes" speech, effectively providing a verbal guarantee that acted to settle the markets.

Six years on from Draghi's speech, the spotlight has been very much on Brexit and the state of the UK economy, rather than the state of the Eurozone. Indeed, since the referendum result, the Eurozone economy has been in something of a purple patch, putting the UK economy in the shade, and fears of Brexit-style anti-EU sentiment spreading to France and the Netherlands have failed to materialise.

However, in recent weeks some of the fundamental problems with the Eurozone have come back to the surface. Draghi's guarantee in 2012 provided time and space to avert an immediate crisis, but the time wasn't used to implement much-needed reforms within the bloc. When Grexit was on the agenda, some of the potential reforms being discussed included closer interaction, a banking union and greater fiscal transfers between member states. But none of this has actually been implemented.

Today, whilst the past two years have focused on the EU's problems on its Western flank (i.e. the UK), the Eastern flank is arguably currently its biggest concern. Euroscepticism has become a major issue in places like Hungary and Poland.

Indeed, Hungary's Prime Minister Viktor Orban recently said that Brussels is the new Moscow - inferring that it is a dictatorship against which his country has to battle. Meanwhile, Poland risks losing its EU voting rights in a dispute over issues with independence (or lack of) in its judiciary. The EU is also threatening to link budget payments to countries' respect for the rule of law, which is causing tensions in various member states.

All of this puts the EU as we know it in some doubt, particularly at a time when countries like Germany have become more inward looking and therefore less likely to have an appetite for the kind of long-needed reforms, including closer integration, that France's President Macron has recently been advocating. What is happening within Italy is also currently a considerable worry.

Italy has been in the crosshairs of financial market concerns of late due to political instability resulting from the prospect of anti-Europe, nationalist parties turning an election into a de-facto referendum on Italy's membership of the euro.

This is fuel on the fire of ever-growing populism in Europe that will provide an ever-greater existential threat to the EU project. And it should be noted that Italy is not Greece; it is a much larger beast as the Eurozone's third largest economy.

We know the havoc that Greece's problems wreaked in the Eurozone - and it is a minnow compared to Italy. Late last week, political instability transferred from Italy to Spain, with the Spanish Prime Minister Mariano Rajoy being forced out of office in a motion of no confidence, further adding to uncertainty within the EU.

This month's EU Council meeting is therefore hugely significant, and will look at some of the most pressing issues including the draft budget and needed reforms, as well as immigration and defence. One of the proposals is to reform aid arrangements, therefore moving around €30bn from eastern European countries, notably Poland and Hungary, to Spain, Greece and Italy. This is certainly a very contentious issue.

So, whilst Brexit is no doubt a significant schism that will present challenges to the Europe, it is perhaps akin to having a limb removed compared to the more fundamental problems at the heart of the bloc. Indeed, Italy was a founding member of the EU which was created as the EEC through the Treaty of Rome 1957. So, the focus in Europe will increasingly move to these issues and it will be extremely interesting to see what the next two years holds for the EU when reforms are badly-needed and the key players are increasingly less well positioned to make them.

From a Northern Ireland-perspective this means that we have a political vacuum at home, political disorder in the wider UK, and the prospect of an increasingly fragmented EU on our doorstep.

When countries like America, Germany and Italy are increasingly putting their own interest firsts, it is increasingly clear that Northern Ireland needs to get its own house in order and start putting its economy and interests first.

  • In next week's Economy Watch, we hear from Danske Bank chief economist Conor Lambe

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