Fresh hard Brexit warnings as Gove rules out extension

AIB chief executive Colin Hunt has warned that a hard Brexit is becoming increasingly likely as we edge towards the end of the year.

His comments at a DCU Brexit webinar last week came as UK cabinet office minister Michael Gove confirmed that the country would not seek an extension of the transition period beyond the end of this year.

“The moment for extension has now passed,” Mr Gove said on Friday after a meeting of the EU-UK joint committee on implementing the Withdrawal Agreement.

Disguised impact

Mr Hunt warned that COVID-19 was accelerating the dangers of a no-deal Brexit, and had caused the UK to “rush towards the brink”.

“The negative economic impact of Brexit will be masked and disguised by the far greater immediate negative impact of the COVID-19 crisis,” he said, at the seminar.

The Brexit Institute is led by DCU law professor Dr Federico Fabbrini.

“Those people of an ideological disposition, who are very influential in terms of the UK Government’s approach to negotiation, are using COVID-19 to drive forward a no-deal outcome.

“They are going for a pure unadulterated Brexit, with nothing added but time, to borrow a marketing phrase. It’s almost like a laboratory experiment”.

Ideology

He said that politics has trumped economics in the UK and political ideology has proven far stronger than economic logic through the Brexit debate, though that may change over time if the UK under-performs.

“I suspect that with the passage of time, a case will be made for the UK to re-join the EU once again, but of course it will be on far, far different terms to the terms it exited.

“To be perfectly frank about it, Britain has a very special bespoke deal. It’s not subject to the Social Chapter, it doesn’t have to be a member of the single currency.

“But those things will change when it comes to look to re-join, as I suspect it will, though it might take 10 or 15 years.

“I have some maybe excessive optimism that that this will be a temporary phenomenon in the long history between these islands,” he said.

Recovery

Mr Hunt said there was never any emotional attachment to the EU, but Britain had been a great trading nation for hundreds of years, and the advantages of membership were seen as comfortably outweighing in economic terms the political inconvenience of Brussels designing its sausages.

The UK has been Ireland’s most important political ally at the EU since the mid-1990s, he added.

Mr Hunt pointed to the Confederation of British Industry statement that an ambitious deal with the EU will be a cornerstone of recovery from the pandemic.

Unprepared

But he said the stark reality is that UK businesses are unprepared for a dramatic change in trading relations with its biggest economic partner in just six months.

“Britain joined the EEC in 1973 for economic reasons and it is leaving the EU in 2020 for political reasons,” the AIB chief said.

While Britain was a driver of economic integration, it was never well-disposed towards political integration, he observed.

The lack of that disposition has led to the increasing possibility of a hard Brexit, the AIB boss said, which even the most ardent Brexiteers never suggested while campaigning for the leave vote.

Diversification

Up to 12% of AIB’s balance sheet is in Britain and the wellbeing of the Irish economy relates to the strength of Britain, Mr Hunt said.

He added, however, that industry and policymakers in Ireland were working towards diversification of markets which in the medium term would be a significant positive.

Grant Thornton chief executive Michael McAteer said that while the pandemic came out of the blue, Brexit still has a number of unknown variables and has had several false dawns.

Businesses had no choice but to react to COVID-19 immediately, he said, but benefited hugely from having clear rules on restrictions and a roadmap that was published quickly, allowing them to plan and adapt.

Pandemic 'cover'

Mr McAteer expressed his concern, however, that the impact of the pandemic on both Irish and UK economies would mask the financial impact of Brexit.

He echoed Colin Hunt’s feat that hard-line Brexiteers are using the pandemic cover for a tougher approach to negotiations.

“If a no-deal Brexit occurs, the financial impact will be positioned as a consequence of COVID-19 and not Brexit itself.

“The way the UK government has approached the COVID-19 crisis would heighten these fears,” he said.

“Compromise is seen as losing.”

Latent potential

Mr McAteer said there would be a ‘lead-lag’ factor in the Irish economy as a result of both the pandemic and Brexit, with the effects not being fully felt until 2021 and beyond.

He said, however, that COVID-19 had magnified already existing problems in businesses and made people act to get them resolved.

The pandemic also brought out latent potential in some businesses, Mr McAteer said, with increased agile working and reduced fixed costs.

Brexit is also pushing businesses to look beyond over-reliance on the British market.

"Some businesses will experience growth not in spite of COVID-19 or Brexit, but because of it,” he said.

Confidence

The economy is hugely impacted by consumer confidence, he concluded, pointing to surveys showing increasing numbers who want to spend more time with their family and maintain or improve their physical health, and decreasing demand for designer luxury goods.

But consumer confidence is not at an all-time low, with more people planning to enjoy themselves and live for the moment, when the crisis is over.

Arthur Cox partner Cian McCourt told the webinar that while COVID-19 was an existential threat, Brexit had become abstract for many businesses because it had gone on for so long.

He predicted significant lay-offs ahead and said that Brexit would make things worse.

Global M&A activity was down 30% in Europe, the UK and the US last year, he said, with a lack of investment in Europe. 

“Instead, everything happened in the United States," said Mr McCourt.

Intervention

He predicted more state intervention in terms of protecting critical EU assets, and what he called a 'circling of the wagons' due to the threat from Chinese companies potentially taking advantage of the depressed value of key assets.

“I don’t think this is protectionist, it’s going back to a level playing field,” he added.

Ironically, he said, the UK’s Competition and Mergers Authority was going to become much more interventionist, and was building up its staff numbers to far greater levels that its European Commission equivalents.

Trade lawyers

Speaking about a potential trade border in the Irish Sea, Mr McCourt pointed out that there were few trade lawyers around anymore.

“People are having to get back up to speed to learn these things, the grinding minutiae of forms and papers,” he said.

Mr McCourt predicted that large UK corporates may bypass investment in the North as a result, because of this, with resulting stronger economic ties between north and south.

He also said that Irish companies could well nearshore in the North, given its lower cost base, in a medium-term convergence.