Ireland’s economic links with Britain have diminished over the years, but as our closest neighbor they are still important and so the extraordinary upheaval at Westminster is having an impact here. A stable and healthy UK economy is in Ireland’s interest – but that is a far cry from where it is right now.
The most obvious impact is on exporters, particularly SMEs and companies in sectors such as food, for which the UK is often a vital market. Business confidence in the UK has been hit hard by recent events and there is a sense that the true cost of the Brexit project – as well as the price of a bout of incompetent management – is becoming apparent.
There are other important implications as well. Ireland now appears to be a safer bet for foreign direct investment. Not only does this country offer access to the EU internal market, the British corporate tax rate is also set to rise again next year to 25 percent instead of being frozen at 19 percent as promised in the mini-budget. Even if Ireland’s tax rate for the largest companies rises to 15 per cent as part of the EU’s response to the OECD tax treaty, there will still be a sizeable gap. Perhaps more importantly, the general political and economic instability in the UK should serve as a red flag for investors, at least for now.
The impact on the Northern Ireland Protocol talks is more difficult to assess. There has been speculation about a better atmosphere in the talks and the possibility of an agreement, although some really difficult issues remain. But do the EU side think current UK Prime Minister Liz Truss – or her government – will be in office long enough to reach an agreement?
Perhaps the most important message, meanwhile, is the obvious one. Market-provided restraint on countries’ borrowing is back after years of being much less significant amid super-low interest rates and central bank support from Covid-19. That also plays a role for Ireland. While Ireland’s budget is now in surplus like any other country, the government needs to maintain credible economic policies in order to refinance credit and take on new debt in the years to come.