Brexit: impact of Irish impasse

Paul Hollingsworth, Capital Economics, gives IGTV his view on how the Irish border impasse will affect the Brexit talks, and the potential risks to the whole process. 

The UK and EU appeared close to agreeing a deal on the first phase of Brexit talks on Monday, but it now appears that a backlash over a potential agreement on how the border between Northern Ireland and the Republic of Ireland will work has delayed things. Until a deal is reached on EU withdrawal, the EU won’t move to the second phase of talks on a future trading relationship.  

Many wish the current open border between north and south in Ireland to remain, but that would involve Northern Ireland effectively remaining within the single market and customs union, while the rest of the UK could be outside. That’s not acceptable to those who wish to preserve the full integrity of the UK.

Northern Ireland’s Democratic Unionist Party (DUP) called foul when they saw the agreement drafted between the UK and EU. They were worried Northern Ireland would become semi-detached from Britain’s mainland, facing a border across the Irish Sea.

It is not a workable solution, according to Paul Hollingsworth of Capital Economics, as the UK cannot give one country such preferential treatment under World Trade Organisation rules, without opening its borders to all other countries.

Theresa May has a confidence and supply agreement with the DUP after the Conservatives failed to retain their majority in last June’s election. Reportedly, the DUP said the draft requires more than mere tweaking, but a radical rethink.

Mrs May is in a very difficult position. She needs the DUP’s support to remain in power, and any accommodation along the lines of a softer Brexit would alienate the hard Brexiteers in her party.

Mr Hollingsworth does not see this problem being easily resolved in the near term. In fact, he sees a significant possibility of a leadership change, or a new government that could request an extension to the departure deadline, or even a revocation of Article 50, the application to leave.

What business needs, he adds, is to know what the transitional deal after a March 2019 departure would be. This would help prevent any near-term slowdown in the economy.  

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