I gave the economics lecture at the recent national conference at NUIG commemorating the centenary of the Easter Rising. I had three main messages. First, the economic history of post-independence Ireland was not particularly unusual. Very often, things that were happening in Ireland were happening elsewhere as well. Second, for a long time we were hampered by an excessive dependence on a poorly performing UK economy. And third, EC membership in 1973, and the Single Market programme of the late 1980s and early 1990s, were absolutely crucial for us. Irish independence and EU membership have complemented each other, rather than being in conflict: each was required to give full effect to the other. Irish independence would not have worked as well for us as it did without the EU; and the EU would not have worked as well for us as it did without political independence.
It was very disturbing to read the following last week:
Agriculture Minister Michael Creed said Ireland will consider a special free trade zone with the UK if Brexit results in a complex UK split from the EU and the Single Market.
It would be legally and technically impossible for one bit of a customs union and Single Market to have such an arrangement with a third party. To achieve such an objective would require our leaving the EU.
And so I was pleased to read this morning that what the Government is actually going to look for is some sort of special status for the North so as to maintain free trade within the island no matter what the British decide. Presumably this would mean the North remaining within the EU’s customs union and/or Single Market, otherwise it won’t work. (Remember: if Britain leaves the EU’s Single Market and customs union without an interim free trade deal with the EU in place, WTO rules require tariffs on trade between Britain and the EU. This can’t be avoided. And that means tariffs on trade between the Republic and Britain. That can’t be avoided either.) I don’t know if such a thing is legally possible under EU law — though as I mentioned earlier the Kingdom of Denmark might offer a possible model — but it does seem like an option worth exploring.
Beware of weasel words however. Jeffrey Donaldson is quoted as saying that
“What we’re really looking for is a special deal for the island of Ireland which enables free movement of goods and people on the island, and preserves the institutions we’ve created under the various agreements,” Mr Donaldson said. “The people we’ll need to convince are the EU.”
Yes, keeping the North inside the EU Single Market or customs union would indeed require this being possible under EU legislation, and it would require both good will and a fair amount of technical work to make it work, if it is even a runner in the first place. (How on earth would agriculture be dealt with, for example?) But the real problem is likely to come from the UK. Mrs May’s speech over the weekend seemed to rule out a special status for Northern Ireland — I thought she was pretty explicit about this. And how would the DUP feel about the logical corollary of such a scheme, namely customs frontiers (and in all likelihood tariffs) between the island of Ireland and Britain?§ The people that we will need to convince, above all, are in London and Belfast. And let’s start by trying to convince them to remain in the customs union, at least as an interim measure, until a free trade deal can be sorted out.
(And let’s not forget: it’s London that is responsible for this mess in the first place. Why on earth did Donaldson’s party support them?)
§ Yes, a border with the Republic promises to be extremely costly for them, but I presume they also export a fair amount to Britain. One way or another, it looks as though they are in big trouble if London decides to leave the Single Market and customs union.
Our text for today is Graham Gudgeon’s piece in the Irish Times, which makes a number of questionable claims.
First, he argues that
An accurate version of Ireland’s economic history is important. This is because, contrary to what we are continually told, EU membership does not seem to have had a noticeably beneficial impact on Ireland’s economic growth, even if this seemed to be the case during the great construction boom occasioned by overly low interest rates inside the euro zone.
I don’t think any economic historian or economist believes that the EU has not been massively good for Ireland’s economic growth: just compare our experiences pre- and post-1973.
Maddison’s numbers show per capita growth of 3% p.a. 1950-73, and 4.1% p.a. 1973-2008. 4.3% p.a. 1973-2000, in case you want to strip out the Celtic Bubble years and the first year of the crash. That’s before we even get into the important issue of what was happening to the number of capitas. GDP grew by 3.2% p.a. 1950-73, and by 5.1% p.a. 1973-2000. 5.0% 1973-2008. And there is an even more important point to be made. The period from 1950-73 saw extremely rapid growth throughout Western Europe: our growth rates then were disappointing in that context. Growth slowed everywhere after 1973: our growth rates since then have been very strong in that context.
Our whole development strategy has been to serve as an export platform for multinationals selling into the EU market. You might think that we should be diversifying, and I might agree, but everyone accepts that the strategy has worked, massively, to date.
From the text, it seems that Gudgin may be confusing EU and Eurozone membership. I’m one of those who thinks that the Euro has been a damaging failure, but let’s not confuse the EU, and the Single Market’s four freedoms that have worked so well for us, with a flawed monetary union.
Gudgeon then goes on to say that
In fact, as Ben Kelly has usefully reminded us, unless the British decide to stay in the EU customs union either permanently or as an interim measure (or, most implausibly, succeed in negotiating a free trade agreement with the EU within two years of Article 50 being triggered) there will have to be tariffs between Ireland and the UK. There will be no choice in the matter: for the EU not to impose tariffs on UK exports would leave it in breach of its WTO obligations. And unless the UK has zero tariffs on everything from everyone, WTO rules would similarly oblige it to impose tariffs on EU exports.
Unfortunately for us, it seems likely that the British are intent on leaving the customs union, as Robert Peston points out here. There is therefore a fairly strong possibility that we will see tariff barriers between the Republic and Northern Ireland in the not too distant future (unless the North can get a special dispensation to stay in the customs union, and the tariffs are imposed across the Irish Sea instead).
There are those who would like to see Ireland leave the EU. Expect them to argue in the years ahead that any border controls between the Republic and the North are arising because of “pressure” from the Continent. Expect them to further argue that this shows that our true friends are in London rather than the European mainland. On the contrary: any border controls that arise will be as a result of British decisions, and British decisions alone. And to date there is no indication whatsoever that those decisions are taking any heed of Irish interests.
I have a post on this subject at VoxEU, available here.
My latest Critical Quarterly column, on Ireland’s not-so-unusual economic history, is available here.
There is a depressing amount of wishful thinking going on in the UK right now: for a recent example see here. When Iceland’s banking system collapsed, that was a real emergency requiring capital controls: the sort of eventuality envisaged by the now-famous Article 112 of the Agreement on the European Economic Area. It isn’t at all clear to me that the rest of the EEA will view the argument that “there are too many of your lot in our country, so let us keep them out” in the same light. There is also a big difference between triggering an emergency clause in a contract, when an emergency arises which was unexpected when the agreement was signed, and saying from day one that you want to opt out of a key part of an agreement. And the have-your-cake-and-eat-it brigade also fail to mention that, in addition to Article 112, there is Article 114, which states that
If a safeguard measure taken by a Contracting Party creates an imbalance between the rights and obligations under this Agreement, any other Contracting Party may towards that Contracting Party take such proportionate rebalancing measures as are strictly necessary to remedy the imbalance. Priority shall be given to such measures as will least disturb the functioning of the EEA.
It seems to me that England cannot afford wishful thinking right now, and that those who wish her well need to be crystal clear about the choice it faces, so that there is no mis-understanding on the English side.
I recently published an article on the subject, aimed above all at former Remainers, here. That was a heavily-edited-for-newspapers version of something I originally wrote for this site. Since I use this blog in part as a reminder to myself of what I have written, I reproduce the original blog post below the fold, links and all.
An astonishing dereliction of responsibility
Colm makes an important point on those Irish GDP statistics here.