Well it’s raining, again

With flooding back in the news today, I thought I’d take the opportunity to mention that my colleague and co-author Swenja Surminski from LSE will be giving evidence tomorrow morning (Thursday) at the Oireachtas Finance Committee hearings on the Flood Insurance Bill. Details of the session are here. You should be able to watch proceedings online here. The Flood Insurance Bill can be viewed here.

Wir brauchen nicht noch mehr Offenheit

The NZZ interviewed me last week in Zürich. I made the case that we live in a world that is already astonishingly open, and sufficiently so that it is allowing poor countries to grow rapidly; and that Davos Man and Woman should therefore seek to preserve existing levels of openness, rather than pursuing a permanent pro-market revolution that will inevitably provoke a political backlash (and  indeed is already doing so). The interview is here.

Brexit and Ireland – North and South

The US journal, World Politics Review, carried a one-page interview with me last week, focusing initially on why the border is such a sensitive issue, but broadening out to cover some less obvious angles.

As the interview is behind a firewall, here’s a pre-publication draft:

WPR: The Irish border issue, specifically the prospect of a hard customs and immigration border going up between Northern Ireland and the Republic of Ireland, looks increasingly like the biggest snag in Brexit talks so far. What solutions or proposals are the different sides—in Belfast, Dublin, London and Brussels—offering?

Frank Barry: The substantive issue here is rarely spelt out explicitly. It is, as political scientists in Belfast have informed me, that if uniformed customs or immigration officers are placed on the Northern side of the border, they will have to be protected by armed police, who will in turn require the protection of the British army. This is because the border areas are the stronghold of dissident republican factions that have consistently rejected the peace agreement of the 1990s that achieved a high degree of consensus across these islands. Stationing troops in the border areas will inevitably lead to clashes, which raises the specter of a return to conflict in Northern Ireland.

The economic problems associated with Brexit are also substantial. Agribusiness, which is of major significance to both the Northern and Southern Irish economies, is the sector likely to suffer most damage from Brexit. Supply chains are highly integrated across the border, so Brexit of any form will be hugely disruptive.  Businesses on both sides of the border have been restructuring vigorously in advance of Brexit, but restructuring is costly and there are some problems that cannot be surmounted by cross-border tariff-jumping investments.

The Irish government and the European Union have advocated what essentially amounts to moving the international frontier into the Irish Sea between Britain and the island of Ireland. This proposal is anathema to both Northern unionists and the British Conservative party as it affects the constitutional integrity of the United Kingdom. The matter is further complicated by the fact that the Conservative government in the United Kingdom is dependent on the parliamentary support of Northern unionist parliamentarians for retaining its majority—giving it strong reason not to upset this part of its coalition. The British side has suggested that the problem can be resolved by technology to monitor the cross-border flow of goods. At least some customs officers and random checks would continue to be required however, and it is difficult to see how Britain can regain control over immigration without a heavy presence of immigration officials. I can see no solution to the danger of a return to civil strife other than the one being advocated by the Irish government and the EU. The constitutional issue lay at the heart of the Northern conflict however, and unionists are prepared to risk a lot rather than see their constitutional position within the United Kingdom jeopardised.

WPR: How likely is a “hard Brexit” as a result of these negotiating hangups?

Barry: Either the British deny the unionist community in Northern Ireland a veto or the EU and the Irish government accept a land border on the island of Ireland. If this circle cannot be squared, the UK will exit the EU without a deal. This is the ‘hardest’ of the ‘hard Brexit’ possibilities. A hard Brexit typically entails defaulting to World Trade Organisation rules, involving a very significant deterioration in the  trade relationship between the UK and the EU. But the bad blood engendered if the UK would to leave the EU without a deal being struck would spill over into other areas. Nor is Northern Ireland the only stumbling block in the negotiations of course.

WPR: Does Brexit pose a bigger economic threat or political threat to Ireland and Northern Ireland, given the terms of the Good Friday peace agreement?

Barry: The political threat is the one that frightens the Irish side the most, because of the danger of a return to civil strife on the island. The economic threat is substantial, particularly for, though not confined to, agribusiness. In the past, one might have hoped for EU structural funding to offset some of the damage to businesses and the economy. The UK however is a major contributor to the EU budget, and competition between remaining EU countries over the reduced budget will be intensified. Irelandwhich is by now one of the richer EU member stateswill face an uphill battle in accessing adequate compensation to alleviate the damage.

A further problem is that up to two-thirds of Irish exporters use Britain as a bridge to their continental European markets. For users of this route, Brexit will entail higher transport costs and significant time delays. Two new sets of customs frontiers will have to be crossed, as goods enter the U.K. and then re-enter the EU.

On the economic front, there are some offsetting benefits, though these pale in comparison to the costs. Britain will become less attractive to firms from the U.S. and other non-EU countries selling into the EU market, and Ireland will attract a share of the foreign investment diverted away from the U.K. British firms, too, are likely to establish in Ireland to retain free access to the EU market. Paradoxically, the harder the Brexit the stronger this effect will be. Loss of access to the Single European Market will be particularly significant for financial services firms. A large number of London-based firms are currently exploring the option of establishing operations in Dublin as a way to retain market access, though Frankfurt, Luxembourg and other locations are also competing vigorously for this business.

To the extent that Ireland is successful in attracting a share of financial services firms, however, another dilemma arises. The financial services sector in Ireland is almost entirely Dublin-based, while agribusiness is largely based outside Dublin. Regional disparities are thought to have played a role in the Brexit vote, and in the election of Donald Trump to the U.S. presidency. A widening of regional disparities could lead to a similar anti-globalization backlash in Ireland.

Brexit has not, so far, resulted in any significant weakening of Ireland’s commitment to full EU membership. But the U.K. has played a strong role in resisting the centralizing instincts of some powerful EU member states. An EU minus the UK is likely to be more strongly committed to some form of corporation tax harmonization. Yet Ireland is highly dependent on the foreign-owned multinationals, for which it serves as an export platform. These account for over 80 percent of Irish exports and have been a major factor in the rapidity of Ireland’s recovery from the financial and eurozone crises of the late 2000s. If Ireland’s attractiveness to multinational investment was to be severely diminished, its integration into the EU economy, and its ongoing commitment to the EU, could be substantially weakened.

 

Journées de l’Economie

I was at the Journées de l’économie in Lyon last week: this is a popular economics festival at which literally thousands of members of the public show up to listen to people like yours truly.

I was on a Brexit panel on the Wednesday, and tried to explain to a French audience how serious the issue is for us (I start about 30 minutes in, but the whole thing is worth listening to; I thought Jon Henley in particular, who preceded me, was really excellent and made all the points you would have wanted to make yourself); there was a more academic session on a very French topic (“Mutations du capitalisme“) on the Thursday,  at which Daniel Cohen made a couple of points that I thought were very thought-provoking (and also very French).

On Dividing Large Numbers by Other Large Numbers

Conservative backbench MP Jacob Rees-Mogg, welcoming today’s Economists for Free Trade report predicting a bright post-Brexit future for the UK economy, remarked that the loss of the UK’s £9 billion per annum net contribution to the budget would render the EU ‘effectively insolvent’, according to the Guardian.

They should therefore be threatened with immediate suspension of the UK’s payments, forcing the EU to do a deal. Nine billion divided by the EU-27 population of 450 million works out at £20 per capita per annum.

Mr. Rees-Mogg has been described as a possible future leader of the Conservative party and has performed strongly in straw polls of party activists.

Is it OK if I lie down for a while?