Insider or Outsider? Bloomberg article on Honohan succession

There is a brief article in Bloomberg Business today about the search for a new Irish Central Bank governor.

“Ireland is about to deliver evidence on whether, nearly two years after regaining its economic sovereignty, much has really changed. ……   Noonan’s dilemma now is whether to move back to the pre-crisis mode of finding a governor from inside the civil service, or repeat the Honohan recipe and appoint another outsider.”

The Paddy Power betting odds are discussed. As a financial economist, I am forbidden by the Efficient Market Theory from making gambling bets, but perhaps some of the labour/macro economists might want to take a punt.

I had an earlier post on the strategic issues around this appointment. The recent China-related volatility in financial markets is the latest difficult policy problem confronting monetary authorities in Europe and globally. Ireland should appoint someone as governor who can serve both domestically and also contribute to ECB council deliberations.

Since some readers will know some of the people mentioned personally, I blocked the comments feature.

 

Brexit and Ireland

The election of the majority Conservative government in May meant that a referendum to decide whether Britain remains part of the EU became inevitable. A commitment to an “in-out” referendum on EU membership was provided in the May Queen’s Speech and it will likely go ahead in 2016 (or 2017 at the latest). Opinion polls show a split electorate. Risk aversion and other status quo factors should work in favour of the “stay” side. Bookies odds reflect this with at least one popular bookmaker placing the odds of a “leave” result at 3-1. In any case while the likeliest outcome at present is that Britain will remain in the EU, it is still a strong possibility they will leave and worth discussing in terms of implications for Britain and other countries. Germane to the title of this blog the implications for the Irish economy broadly are worth discussing.

In the draft national risk assessment published by the Taoiseach’s office earlier this year, Brexit is mentioned as follows:

“Following the general election in May, the British Government is likely to make proposals both on how the functioning of the EU could be improved and on how specific UK concerns about EU membership could be addressed, with the possibility of a UK referendum on EU membership. A fundamental change to the role of the UK in the EU, or a period of continuing uncertainty regarding the UK’s relationship with the EU, could present significant challenges for the EU as a whole and for Ireland in particular, especially in terms of (i) pursuit of Ireland’s objectives as a Member State as the UK is an important ally within the EU on negotiations on issues of mutual concern such as trade and the deepening of the single market; 24 (ii) bilateral relations with the UK, including the significant economic and trading relationship; and (iii) the impact on Northern Ireland issues and North/South relations.”

A number of questions come to mind in the prospect of Britain leaving the EU. I raise these purely for discussion and they are not ordered by any degree of likelihood or priority. In the event of a “leave” vote a number of alternative configurations might result including various forms of trade deal with the UK and EU members. (See here for one attempt to answer some of the economic questions below; Davy’s also released a piece on economic effects; NTMA piece on economic effects here; Alan Matthews on the implications for Irish agri-food).

a) What are the implications for border arrangements between Northern Ireland and the Republic of Ireland?

b) What are the implications for the status of UK citizens living in the Republic Ireland?

c) What are the implications for Irish citizens living in the United Kingdom?

d) Will the uncertainty surrounding the referendum affect currency volatility?

e) How will the uncertainty surrounding the referendum impact on FDI into Ireland? Does the prospect of a Brexit make Ireland a safer destination for some types of companies relative to the UK? In a “leave” scenario would Ireland be more attractive a destination than the UK for non-EU companies looking for access to the EU market?

f) How would a Brexit influence trade between Ireland and the rest of the EU?

g) What implications would Brexit have for the Scottish political situation and potential knock-on effects to the Irish economy?

h) What implications would it have for support for the EU in Ireland?

i) How would a “leave” result influence the Northern Irish economy?

j) Would a “leave” result limit mobility of Irish people to the UK?

k) What implications would a “leave” result have for wider political movements in Europe?

The small amount of publicly available analysis so far suggests the answer to most of the economic questions is that it would have a negative impact on the Irish economy largely coming through trade disruption. But it seems clear there is a lot of uncertainty in what a leave scenario would look like. As reported widely in the media there are now various groups in Ireland looking at these questions including in various state agencies and the Central Bank. It will be interesting to see this debate unfold.