The return of political leaders to Westminster after the holiday season and the ensuing vote to reject May’s Withdrawal Deal and subsequently to seek alternative arrangements to the Northern Ireland ‘backstop’, have done nothing to allay businesses’ rising concern. With two months left until the UK exits the EU, it is alarming that no material way forward has been devised. Simultaneously, there is mounting discussion of stopping Brexit altogether, even among politicians and business leaders. This emerging narrative of extremes – that of ‘no-deal or no Brexit’ – is compounding uncertainty and frustration.
The votes also had wider consequences. The Prime Minister (and the UK) increasingly appear to the world as an erratic negotiating partner. In the short term, the EU will view the last few weeks as confirmation of why the backstop is needed. Longer term, it is interesting to consider how countries will now view the UK in a trade negotiation. Specifically, how to conduct a negotiation with a counterparty who is willing to insist on something now, only for them to disavow it later?
The EU heaped more pressure on Brexit negotiations in mid-January by outlining in the event of a no-deal that it is ‘pretty obvious’ physical infrastructure would be required i.e. a hard border . Of course any mention of a hard border on the Island of Ireland does not sit as easily with the Irish Government. Tánaiste Simon Coveney outlined that the government will not support the re-emergence of a border. A Government spokesperson also confirmed that they will not accept a hard border and therefore are not planning for one. A press release from Minister Donohoe earlier in the week said that under a no-deal exit of the UK from the EU, the Irish economy could be 4.25 percent smaller than current projections over the medium term. Employment would also be affected with slower increases and the unemployment rate could rise by 2 percentage points. The modest budget surplus projected for 2020 would turn to a deficit.
Outside of Brexit there have been growing calls from within Europe to scrap member states’ veto on tax policy, an idea which was immediately rejected by the Government. Ireland’s tax policy continues to be key to supporting competitiveness and changing to a weighted majority–rather than the current unanimous voting system–which will dilute and hinder fiscal policy sovereignty.
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