Irish Vice-Premier Minister Frances Fitzgerald resignation has permitted to avoid, at the last moment, a political crisis in her country. That would have increased the confusion which currently prevails in the negotiations regarding Brexit. They will be the major issue which will be discussed during the next European summit which will take place December 14th and 15th. The case is not well under way due to its complexity and to the political uncertainties in several countries. In the United Kingdom, Prime Minister Theresa May is weakened by her poor results during the last elections, by the dissensions inside her government and by the forced resignation of several ministers. The lack of government in Germany is not helping. A political crisis in Ireland would have worsened the situation, which would have been especially worrying because the country is going to be at the center of the talks.
Until now, discussions have been about simple issues, but not necessarily easy to solve, like the bill United Kingdom will have to accept in order to pay off its commitments. Even if the debate will be tough, parties around the table will reach, at the end, an agreement where no one loses his face. To elaborate new rules regarding goods and services exchanges will be long and probably necessitate extra time. But it is in the interest of everybody to reach an agreement. The U.K., it is in its DNA, always tries to take a profit from relations it establishes and, in the same time, to reduce to the minimum the disadvantages. It will want to continue to profit from what it appreciated in belonging to the European Union and, in the same time, to withdraw from the rules which were the counterpart of these advantages. But its negotiating partners are not naïve.
The second field which necessitates a quick solution regards the rights of European nationals who live in the U.K. On that issue also, London has a great interest to be accommodative. The country needs these qualified workers its past partners offered to it. The City, even weakened, cannot do without them and the current crisis which is affecting the National Health Service shows how much England is dependent on the workers it cannot find in its territory. A formula, able to satisfy everybody can be elaborated because, on the other side of the Channel, there is an interest in it, even if it was this issue which weighted, during the vote in favor of the Brexit. It is not going to be the same regarding the third issue, which was not considered as critical at the beginning but which carries a very sensitive political character: the relationship between the U.K. and the Irish Republic which will stay in the European Union and will be under its rules.
Since the Good Friday Agreement in 1998, which put an end to the tensions between Unionists, who wanted to stay in the Kingdom and the Republicans who asked for the reunification of the country, an equal rights principle between all Irish people has been decided and the physical border between the two parts of the island has disappeared. The point that both countries are outside of the Schengen Agreement doesn’t automatically entail its restoration. But the problem is still unsolved regarding Irish citizens rights and the economic relations with the U.K. European countries have no desire to make an exception in favor of Ireland, if we even suppose that it is legally possible. And Theresa May needs, to save her short majority in the Commons, the support of her ally, the Irish Unionist Party (DUP), which is ultra conservative, euro skeptic and strongly in favor of keeping Northern Ireland inside the U.K. which makes more difficult to find a solution.
It is not possible to have, inside the European Union, citizens who don’t have the same rights. In going out of the Union, Northern Irishmen lose, in theory, the rights they got when, in the same time, Irish citizens keep them. That situation is in contradiction with the Good Friday Agreement which permitted the pacification of the island. It could result from the Brexit a renewal of the tensions between communities inside the area. The same Agreement offered, de facto, the twin nationality to Northern Ireland citizens. Will Europe accept that these one have the right to stay inside the Union if they want it even after the United Kingdom exit is effective? Of course, no. On the opposite, the restoration of a physical border between the two parts of the island to control migrations is not necessary because an agreement about travels between the two countries already exists which is beyond European rules. It is quite different as far as trade relations are concerned.
Ireland built its development, after joining the European Union, through attracting foreign investments with a very low corporate tax. Major American and Japanese companies understood that very quickly. To supply the European market, they used the ‘Irish stroll”. They sent components to their Irish subsidiaries which manufactured the final products before sending them to England and to the European mainland. Through transfer prices, they located most of the margins in Ireland and sent the lightly taxed profits to fiscal heavens. And so, for instance, the country became the biggest European exporter of pharmaceutical products without having any pharmaceutical company. It was the same with electronics, as the emblematical Apple case has shown. European companies don’t use so much the “Irish stroll” because their tax administrations got the legal tools to efficiently fight against the manipulation of transfer prices.
So Brexit carries a major threat on what has been at the origin of the country prosperity with hundreds of thousands jobs at stake because the full logistic of the “Irish stroll” goes through the U.K., final products, once they are fit, being sent, most of the time by the sea to British harbors before being re-exported to the European mainland. The end of the freedom of exchanges with the mainland would provoke the break of the supply chain and the end of the Irish economic model. To protect its model, the country will try to ask for derogations or adjustments to its partners, in their new relationship with the U.K.
These ones did hesitate to ask a comeback to normal fiscal practices during the euro crisis, as a counterpart of the massive financial support which had been granted to the country and to its banks which were near bankruptcy. We must hope that, in the coming months, those who are in charge of the Brexit negotiation will be courageous enough to show their firmness to put an end to the massive fiscal optimization which profit to non-European companies.
So the Irish issue will become a breaking point of the discussions. How to recreate between the south and the north of the island a border, at least a legal one which complies with the opposite demands of all the parties? Which exceptions to the European Treaties the members of the Union are ready to accept to protect the Irish economic model and which counterparts they will ask? How both U.K. and Irish governments will find at home political majorities to approve the compromises when these one will have been found at the end?
We were thinking that the discussions regarding Brexit would appear as a face-to-face between the U.K. and the rest of Europe. In fact, there will be three negotiating partners which will make the finding of a solution much more difficult to avoid a dead-end.