In the week in which Theresa May triggered Brexit and the 730 days until a deal is (or is not) done started ticking, there were some very mixed signals about what the impact might be for Ireland’s economy and jobs market.
While the PM’s letter set a conciliatory tone, there was a hidden threat - agree a deal or Britain might well cease cooperation on security issues. At issue is the risk that no deal means that Britain crashes out of the EU and reverts to World Trade Organisation rules with the return of tariffs on Irish exports and potentially a hard border with Northern Ireland.
Even with a deal, the fact that Britain has already signalled that it will be leaving the single market and the customs union and with any future free trade agreement with the EU many years down the road, it is almost guaranteed that there will be a disruption in our trade with the UK from 2019 onwards and Irish food producers and the agri-food sector, in particular, will face a significant decline in their competitiveness. Already, the decline in sterling has reduced our food trade with the UK by over 5% in the past year.
One saving grace here is that the likelihood of the UK concluding a trade agreement with third country agricultural competitors like New Zealand, Brazil and Australia in the short to medium term is low. However, a significant period of adjustment lies ahead for our agri-food sector and the Government must ensure that any business that suffers from the reimposition of trade barriers receive State assistance to get through the period of adjustment.
The only positive fallout from Brexit for our economy is the likelihood of increased levels of financial services jobs as companies relocate their parts of their business to cope with Britain’s expected exit from the single market. We are certainly seeing an increase in the levels of inquiries by potential employers and the seniority of the roles being considered. However, here again, there were distinctly mixed signals about our ability to take advantage of the post-Brexit carve up.
On the positive side, Dublin was ranked fifth among Eurozone financial services centres, according to the latest Z/Yen Global Financial Centres Index (GFCI 21), a ranking that puts us at the top table when competing for jobs.
However, there was also a disappointment, with the decisions of both global insurer AIG and London insurance market Lloyds to opt for Luxembourg and Brussels rather than Dublin for their new EU subsidiaries. Of more concern was that the reason given in both cases was that greater regulatory flexibility was available than in Dublin. In particular, Brussels and Luxembourg showed more flexibility on capital, allowing Lloyd’s to use reinsurance to transfer a larger amount of capital needed for an EU subsidiary back to its London headquarters.
Of course this won’t be the last time that we lose out in the post-Brexit race and there remain many positive signs with the likes of JPMorgan Chase said to be close to identifying premises for a major expansion in Dublin and there will presumably be more who reveal their hands now that the race against time for a deal has begun.
However, the fact that other financial centres are in a position to offer greater regulatory flexibility is a real concern - one that Minister Eoghan Murphy and MEP Brian Hayes have been raising publicly in recent weeks. In reply, the Daniele Nouy Chair of the ECB’s Single Supervisory Mechanism agreed that the relocation of London-based banks ‘should not be an opportunity for a race to the bottom’ in terms of relaxation of banking or regulatory standards. However, the rhetoric from the ECB appears to be running up against the reality of a deliberate regulatory approach from certain other member states, who are keen to deliver the greatest possible Brexit dividend for their financial centres and couldn’t care less about our concerns.
As the EU-27 move towards finalising their overall negotiating position with the UK in advance of the European Council meeting on 29 April, regulatory competition and the race to the bottom is an issue that Ireland needs to get to the very top of the agenda at the highest level. Otherwise, Brexit will be delivering the worst possible outcome for this country.