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Address by Philippe Legrain at the IoD Thought Leadership Event - Brexit – Risks & Implications

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Pictured above is Des Lamont, IoD President, Maura Quinn, IoD Chief Executive, Joanne McEnteggart, Co-Managing Director, Ireland, First Names Group, Aine Lawlor, Broadcaster, and Philippe Legrain, Guest Speaker.

With the UK referendum on EU membership just five weeks away, the Institute of Directors in Ireland (IoD) held an event for 200 directors in Dublin this morning on the subject of Brexit – Risks & Implications, with Guest Speaker, Philippe Legrain, senior visiting fellow at the European Institute of the London School of Economics and former economic adviser to European Commission President, José Manuel Barroso. The event was kindly sponsored by First Names Group.

In his opening remarks and in conversation with well-known broadcaster, Aine Lawlor, Philippe Legrain discussed the risks and implications of Brexit, with a focus on Ireland as Britain’s nearest neighbour.

The webcast for this event is now available.

Watch Here

Brexit: Risks and Implications - Full Speech by Philippe Legrain 

Good morning. It’s a great pleasure to address members of the Institute of Directors in Ireland here this morning.

The in-out referendum on Britain’s membership of the European Union is on June 23rd, only five weeks away. It’s an absolutely massive decision for the future of my country and for yours, indeed for the whole European Union and the Western world, one which could have an impact on every business, including yours.

The referendum is wide open: Remain and Leave are neck and neck in the polls. And while the case for leaving the EU doesn’t stand up, the risk of Brexit is very real.

Because in an age of anti-establishment rage, with the EU increasingly seen through the lens of economic crisis, political turmoil, and unwanted migrants, the Leave camp’s line of blaming Brussels for everything that people dislike about Britain is persuasive, their slogans about regaining freedom and taking control are emotionally powerful, and many voters then project their personal visions of Utopia onto a post-EU future.

That’s deeply worrying because Brexit would actually impose three very big economic costs on Britain and harm Ireland too.

The uncertainty is already depressing investment and growth and the disruption of drawn-out, acrimonious divorce proceedings could plunge Britain into recession. That uncertainty would be amplified by the likelihood of a second referendum on Scottish independence, which could very well result in the break-up of Britain. On top of that, permanent separation from the EU would reduce Britain’s trade, foreign investment and migration, hurting competition, productivity growth and living standards. And going it alone would deprive Britain of influence over beneficial future EU reforms – notably, the completion of the single market in services.

Let me elaborate a bit before I touch on how Brexit would affect Ireland.

Back in the 1980s, it took three years to negotiate Greenland’s exit from the EU and the only bone of contention was fish. So the mind boggles at the complexity of extricating the EU’s second-largest economy from 43 years of joint-legislation with its European partners, negotiating a new economic relationship with the EU that requires unanimity with the remaining 27, and renegotiating from scratch the 50-plus trade deals that the EU has with other countries, each of which has taken many years to negotiate.

In the meantime, Britain’s trading rules and domestic regulations would be up in the air. Investment and employment decisions would be postponed or cancelled. The pound would plummet. The foreign investors financing Britain’s massive current-account deficit might take fright and even pull out.

All of that would weaken economic growth, jeopardising the government’s fiscal plans. And at the end of this long period of crippling uncertainty, Britain would end up with worse access to both EU and global markets.

The UK would definitely lose access to the single market, and all the foreign investment tied to it, because Brexiteers’ obsession with curbing EU migration is incompatible with single-market membership.

Brexiteers are completely deluded, or disingenuous, in arguing that Britain could cherry pick what it likes about the EU and discard the rest. Since Britain sends 44% of its exports to the EU, and the EU sends only 8% of its exports to the UK, the EU would call the shots. And EU governments would have every incentive to be tough, for economic reasons, to steal a competitive advantage, and for political ones, to deter others from following Britain out the door.

So Britain would probably end up trading with the EU on the basis of WTO rules, with tariffs and non-tariff barriers on goods and little coverage in services, and with UK-based financial institutions losing their passport to export freely to the EU.

At best, Britain might end up with a Canadian-style free-trade deal which is slightly better than WTO.  Britain’s new trade deals with non-EU countries would also probably involve worse terms. While the UK wouldn’t be hamstrung by protectionist interests in the EU, its smaller economy, largely open markets, and desperation for deals would weaken its clout.

So what does all this mean for Ireland?

There are three potential positives.

Ireland might be a more attractive location for businesses, notably finance and tech companies, that are currently based in Britain.

That, in turn, could boost exports to the EU.

And Ireland might also benefit from the arrival of more hard-working, tax-paying EU migrants who want to learn English and can no longer go to the UK.

But those three positives are dwarfed by six big negatives.

First, an economic recession and potential financial crisis in Britain would spill over into Ireland, while a collapse of the pound would price Irish exporters out of UK markets and put them at a competitive disadvantage in markets where they compete with British firms.

Second, Brexit would disrupt Ireland’s trade with Britain. There would be tariffs, customs checks, rules of origin requirements and other red tape. That matters, because Britain is the largest export market for Irish services (18%) and the second-largest export market for Irish goods (15%)[1]. Since Ireland would have to apply EU tariffs on UK imports (27%), prices would go up too. And cross-border supply chains would be disrupted twice over. In the agri-food sector, 50% of Irish exports go to Britain, while Irish food-makers rely heavily on British inputs. The biggest blow would be for local Irish firms, who send nearly half of their exports to Britain.

Third, Ireland would lose a key liberal ally in the EU that favours free trade, deregulation and low taxes. The EU would even be more German-dominated, like the eurozone already is, and more interventionist and protectionist. Ireland might find it harder to fight off attempts to harmonise taxes upwards and it could come under pressure to join the Schengen area, assuming it survives.

Fourth, Brexit could jeopardise the common travel area and Irish people’s right to live and work in Britain. Don’t underestimate how desperate Brexiteers are to control immigration, how Brexit would unleash the xenophobic side of English nationalism, and how arguments that Ireland is a special case could be countered with arguments that free movement with Ireland would provide a back door into Britain.

Fifth, it would make the politics of Northern Ireland extremely complicated, while the disruption to trade and EU subsidies on which the North relies would harm the economy, all of which could unsettle the peace process.

Last but not least, Brexit could cause the EU to unravel further, fuelling nationalism and populism, weakening the West in the face of Vladimir Putin’s newly aggressive Russia, and making the international system more unstable.

As a neighbour and partner, Irish voices need to speak out.

Every vote counts, and since nearly all of you have family, friends and business contacts in Britain, you can make a personal difference by persuading people to turn out and vote to Remain.

Thank you.

[1] It is difficult to say how big the hit would be, but the Economic and Social Research Institute says Brexit could lead to a 20% fall in bilateral trade.