02 June 2016 by Caroline Lafferty
With Britain’s referendum on EU membership less than a month away, there is no shortage of economic reports and high profile figures warning of the dire consequences that could follow a vote to leave. Ireland may not have a direct influence in the vote (save for the roughly 400,000 Irish citizens resident in the UK) but most commentators agree that any negative impacts deriving from a Brexit would be felt here almost as strongly as in Britain. An Economic and Social Research Institute (ESRI) report last November suggested that trade flows between Ireland and the UK could be reduced by 20% or more. Several months later the Irish Business and Employers’ Confederation (IBEC) issued a report that argued along much the same lines. The Taoiseach has called Brexit a “major strategic risk to Ireland” and is currently urging the Irish within the UK to exercise their voting rights in the cause of keeping the UK within the EU. A recent address organised by the Institute of Directors and given by Philippe Legrain from the European Institute of the London School of Economics highlighted the strong possibility of a post-Brexit UK recession which would inevitably spill over into the Irish economy.
These various voices are a reflection of the ‘remain’ arguments being promulgated on a daily basis across the water – the Confederation of British Industry has strongly advocated continued European membership while the Financial Policy Committee of the Bank of England has said that uncertainty surrounding the referendum remained the biggest near-term risk to the UK’s financial stability. An HM Treasury report on the impact of leaving the EU predicted an immediate and profound economic shock which would lead to a recession and a sharp rise in unemployment. This report followed a previous report on the long-term economic impact of a Brexit, which predicted that Britain outside the EU would be “permanently poorer.”
All of this leads us to an important question: how are Irish businesses preparing for the range of eventualities that might or might not be realised in the case of a Brexit which might or might not happen? Taking the Irish business community as a whole, preparations for Brexit appear to be haphazard at best. A recent survey conducted by the Institute of Directors found that while 92% of directors were concerned about a UK exit, only 12% of Irish organisations had put a contingency plan in place. This in spite of the fact that 81% of the surveyed directors said they were worried that the Irish government and its institutions were not adequately prepared.
In the UK the level of preparedness is similar. A Financial Times article in April reported that three quarters of the UK’s FTSE companies had not discussed Brexit contingencies with either the chairman of the audit committee or the chairman of the board. Similarly the FT-ICSA Boardroom Bellwether report of May 2016 found that only 49% of those FTSE 350 boards that had responded to the survey had considered the implications of the UK leaving the EU. Planning for risks and opportunities is a staple of good business and good governance, so why is it that businesses are failing to prepare for one of the biggest and most flagged risks in today’s world?
The answer, we must assume, is that the sheer level of uncertainty surrounding Brexit and its implications makes any sort of substantial planning all but impossible. In the words of Charlie Flanagan it is a “leap over the cliff into the unknown,” and in such a case how do you plan your landing? The government itself seems to hold little by way of contingency, and its response to date has been to try and rally its pool of Irish voters and in general promote a message of ‘remain’. However, they have not said what their next step will be if these measures should fail.
Of course, the uncertainty might come to an end on the 23rd of June, in which case the majority of Irish businesses will breathe a sigh of relief. Or it could open out into two more years of uncertainty as Britain negotiates its withdrawal agreement and Scotland possibly pushes for a second independence vote while Eurosceptic parties across the member states clamour for their own referendums, their Frexits and Grexits and Sprexits. And after that? Well, we shall see.