 I'm Donald Debut here. I'm the Acting Director General of the Institute. We're here to talk about Brexit 52 days to go. That's as far away as 29 March is like the 15th of December. We're equally distant from that. It's the biggest economic challenge for Ireland since I think the crash. The biggest political challenge since World War II. For the next seven weeks here in this institute, we're going to have regular events and I hope you'll be able to join us for them because I think it's a particularly important time. We've invited Sarah Kerry to run proceedings. Sarah is a well-known journalist and broadcaster and I'm going to hand over to her to do the necessary. Thank you. Good afternoon everybody and many thanks for joining us today. It's great to see such interest. It's just not surprising really given how this train is coming down the tracks towards us on March 29. Just some housekeeping first. Do switch your phones to silent. You don't want us all judging you when it's your phone that goes off halfway through Dan's opus. We are closing the event at 2 o'clock sharp. Obviously as a lunchtime event people do have other places to go in that. So bear that in mind during the discussion. Both Dan's address and the questions and answers are on the record and are being filmed and there are journalists present here. So anything you say will be recorded and possibly published if you want to temper your remarks accordingly. When we get to the Q&A I'll be asking you to identify yourselves and your organisation if relevant. We can deal with that at the time. So it just falls to me then to introduce Dan. I don't need to list his qualifications here to this audience. But perhaps on a more personal note I would like to say that one of the smartest people that I've ever known said that the most dangerous times in Ireland's history are when everyone agrees with one another. And I think Dan has excelled himself in with intellectual rigor and integrity being a voice of caution particularly on some of the major policy areas that so many of us and I say us advisedly I support the whole issue off the backstop and forcing the UK to face up to the trilemma that they've put themselves into. But Dan's analysis has been searing and I was very glad to hear him say on the Today programme on Radio 4 last week which I was listening to very closely when he said he hoped he might be wrong about his fears on the backstop. And I'm afraid he might be right. So that's what I'm bringing to the table today when I'm listening to him. So he's going to give us about 20 to 25 minutes and then we can open it up for discussion. Thank you. Thanks Sarah and thank you all for coming. Huge interest in the whole subject of Brexit despite all of us talking about it almost endlessly taking up a huge amount of time. I'm going to show quite a bit of data today. I know there are some hard copies floating around and you can get them. We can email me or email the Institute. We can get more to people if you want. So I'm going to go quite quickly through it to give more time for conversation. Let me also just lay out how I'm going to structure this. I always think it helps people when they're out of talk to get a sense of how it's going to be structured. The first thing to do is how bad things could get economically if there's no deal. So let's get the really scary stuff done first. The second thing, the effect so far. This is actually a pretty good news story. Third, think a little bit about how the EU could change with the UK's departure and finally that word. I think it's been used more in the English language over the past 15 months than all human history put together before that. So how bad could Brexit be? Now, it's always struck me that there's a greatest asymmetry around this, that different countries will be affected in different ways. One of the things during the referendum that I thought never got brought out in the UK debate was just Britain's, the difference there is between Britain's dependence on the EU and most other country's dependence on Britain. A lot of people in the referendum were saying that half our exports, less than half of British exports go to the EU and that's falling and this means that there shouldn't be, that they should be focusing on those faster growing markets. Many people also said those Prosecco producers in Italy, those car makers in Germany would put pressure on their own governments to give Britain a good deal. Now that was always a mistake and it never really came out but I put all the numbers together. Now the following chart looks at each EU member state, its exports to the UK as a percentage of its own GDP. That's what really counts. It's how important those exports are for the wider economy. So a country that doesn't export very much, a third of its exports, a third of a small figure is a very small figure. But a country like Ireland that exports and trades an awful lot, you take a tenth of a very big figure and you still have a substantial figure. So it's important to look at the relative importance for the wider economy. So with the 27 member states, its exports to the UK as a percentage of their GDP and the UK its exports to the 27 as a percentage of UK GDP. Now what do we see? I put this together in 2014, hasn't changed substantially. Look at the far left there, Italy. If you took all of the goods and services that Italy sells to the UK, that includes tourism, all the British tourists that go to Italy, if you add it all up, the value is about 1% of the Italian economy. So the island of Britain could sink into the North Atlantic and it wouldn't have that much effect on the Italian economy. We go up a little to France. About 2.5% of France's exports of goods and services, that's equal to about 2.5% of GDP. Again, not huge amount. Even Germany a bigger exporter, it's 3.5% of German GDP. Now the red line is the UK. UK's exports to the EU 27 is amount to about 13% of UK GDP. Now if you took that by a third, that alone would be enough to put the UK economy into a deep recession and that's just the trade channel. So a much bigger shock for the UK economy if there were to be let's say a third of trade destroyed because of a no deal. You'll also notice that Ireland's exports to Britain as a proportion of our economy are greater than Britain's exports to all of the EU 27. Again, I don't need to spell out what would happen if there would be a reduction of those exports by a third. Now let's just widen it out a little and say that Ireland's a highly open economy and let's look at the history of the openness of the Irish and British economies over the past 60 years. So this is trade both imports and exports as a percentage of GDP going back 60 years. Now I've crudly put a couple of red lines in there. The first red line is when we both joined then EEC and you'll see both countries became much very rapidly much more open. So joining the EEC had a huge impact on the openness of both economies. Ireland went on to become more open. I think this is not that well understood but Britain actually became less open in the second half of the 70s and into the 80s. The single market early 1990s changed things again and Britain's pattern reversed and it again became more open. Ireland became supercharged. The single market transformed the Irish economy and you can see just how much more open it became after the single market. But the point for this is that Ireland is about 3.3 times more trade dependent. That's imports and exports. So you get a disruption to trade for this economy and the impact is much bigger. Far more bigger percentage of companies in this country are involved in trade in one way or the other. They use stuff for their production, they're involved in exporting then is the case in the UK. We are simply a much bigger trading economy and if you disrupt those trade flows you're going to have a much bigger hit for your economy. We talk an awful lot about exports and that's absolutely right. In my view we talk too much about exports and not enough about the import risk in no deal. The exports into the UK as has been confirmed yet again and anyone has been paying attention to this, the British have been flagging this for months that they will simply wave the trucks in. If there's a no deal they're just going to wave the trucks in and I have not heard a single person who has informed who has heard anything else. To minimise the disruption the British are going to wave the trucks in even if the EU side imposes tariffs they won't be reciprocated immediately. So Irish exporters probably are going to have less of a problem immediately. The exchange rate will be a big thing, I'll come to that in a moment. But in terms of just delays at ports that is actually going to be a less big of an issue. If on the other hand we are obliged to import tariffs and Britain immediately is treated as a third country then the import disruption side could be much bigger. And let me just draw your attention to imports from the UK. Two most important imports from the UK are the stuff, the nuts and bolts, the energy products that go into stuff that's made here. So about 8 billion a year is imported directly from the UK and 3 billion worth of food. Now this doesn't include the land bridge effect. A lot more of the stuff that's shipped into this country comes across the UK. That's at risk of being disrupted again in the event of a no deal. That is purely the stuff that's sourced out of the UK economy. Now as a percentage of all exports from all over the world let's have a look see of those too. Excuse me, imports for production, about a quarter of all goods that are imported that go into the production process here come from the UK or sourced from the UK. Again that does not include the land bridge. Food, we all sort of seem to think that we're hugely food secure, we're not. Half of the food that comes into this country comes to the UK. We are highly specialised in beef and dairy. We import 25 times more potatoes than we export. We import 40 times more flour products than we export. So two of those staples potentially seriously disrupted in the event of a no deal. That issue, and I've been saying since last summer, consumers matter more than producers. Much happier story is the economic effects so far. The big clear effect has been on the exchange rate. Let's just have a look at the Stirling exchange rate over the past four years. Again apologies for my crude graphics added to the chart there, but we can see a lot of the Brexit fears were priced in. Stirling started depreciating the previous October. The referendum was in June. There was a big decline then. One of the things that's really surprised me since then, the past 18 months, is how stable the exchange rate is being. Now different people have different views of the probability of no deal, but I think almost everyone would agree that the probability has risen over the past 12, 18 months. That has not been priced into the exchange rate. Let me just add another sort of thing about the fundamentals. Britain is very uncompetitive. By the most basic measure of how much it sells to the world and how much it takes in, Britain is running a very big external deficit. That's always a very clear sign that there's a risk of big depreciation and that has nothing to do with Brexit. But if you take the Brexit shock and the fundamentals together, there is a very big risk of a very large readjustment of the exchange rate. That's a historical quarterly balance of payments figure for the UK. So that Stirling thing has shown up in Irish tourism. So there has been a hit, but it's been quite small. We look at what happened to tourism arrivals 2016 from Britain, dipped in 2016, still 2017, still lower than 2016. So the exchange rate has a clear effect on how far the British pound goes in Ireland once it devalues. But, and this is very much the story of this period since the referendum, other markets have been growing very rapidly. The number of visitors to Ireland last year surpassed the 10 million threshold for the first time ever. A very strong growth in nearly every other market. So, while there have been difficulties with Britain, other markets have been growing very well, more than offset, way more than offset the losses from... ...a decline in the new British alive. Exports are the same thing. Goods exports fell in 2017 vis-a-vis 2016. But again, it wasn't huge. Services exports grew. Services exports are very important for the Irish economy. And this is just monthly exports. UK and all other exports. UK, Bob and along, there's some growth there, but we can see exports to the rest of the world, multiples of UK exports now. And that's where all the action is, that's where the growth is. It's to the rest of the world. So there's been some effect, but it's been quite limited. Overall, the Irish economy is in a sweet spot. Not too hot, not too cold, things going very well. And if we look at the whole dashboard of economic indicators, I think it shows it. One that everyone understands and what's very reliable is the number of people claiming unemployment benefit. Highly the detailed number is not a survey, it's administrative data, very reliable. Here's the numbers claiming benefit on a monthly basis over the past four years. Look how smooth this line is, it's boring. It just comes down. Little blip around the referendum, couple of the little blips. But what we've seen is just this incredibly smooth fall in the number of people on benefits. Again, this is administrative data, very, very accurate. So economy has been going in the right way without any real knocks. So whatever knock there was from Brexit has been more than offset by other positives. Only one thing that I've found in the data that would be any cause for concern is employment growth in the border region seems to have faltered and that has coincided with the referendum back in 2016. Employment of the border region have been growing since then, not so good. Now, I don't know, it's hard to know, is that to do with businesses around the border saying we need to be careful and that's not invest, let's hold back. That's not clear. There's not correlation, there's not causation, but it's just something to watch. Okay, let's just talk about one of the upsides of Brexit. Clearly the, and we read most days in the papers, the possibility of relocation UK firms and foreign firms based in the UK relocating to Ireland. That certainly has been happening and it's a huge opportunity. Britain is the most, has been the most attractive place in Europe to invest. The stock of foreign direct investment in the UK is the second biggest in the world and the biggest in the EU. Let me just graph that. Okay, now if Britain leaves the EU, one of the surest bets I think you could make is that Britain's attractiveness is a place over the long run to do business will decline. Not being part of the biggest market in the world cannot be very difficult to see that being a benefit for investors who are coming in from outside. So there is going to be some shift and we've already seen it. The question is how big it's going to be. So that is a clear opportunity in my view the only opportunity from Brexit. Now let's talk about Britain. The British economy again has also been surprisingly resilient. Sit is standing here the day after the referendum two and a half years ago when we had an event to discuss it. One of the things I said was that if one in four British businesses postponed investment, that might be enough to cause a recession. So if one in four businesses said okay wow we hadn't expected this, we're not going to invest in that new plant, we're not going to invest in that new premises and they just held off. That alone would of course have been enough to cause a recession of the UK economy. It didn't happen. A really remarkable lack of impact of the vote on corporate behaviour. Very very surprising. And the UK economy has had some difficulties. The sterling thing did cause a problem for consumers. It caused inflation to rise. That ate into real incomes and that was a hit. But the way exchange rates move there can be upsides and downsides to it. If we look at GDP over the past a few years it's hard to find a really strong trend there either way. GDP growth in the UK actually accelerated in the two quarters after the referendum and it's been chugging along since. So there's no, there are some signs more recently of that business investment slowing down turning negative and that uncertainty actually having an effect on corporate behaviour. But overall the economy in the UK has done pretty well. Unemployment is at a four decade low so if a recession is coming at least they're starting from a reasonably decent starting point. Brexit implications for the EU, how sort of time are we at? Let me just quiz through this. So I think we would all agree anybody who observes the EU would agree that the departure of one of the three big most influential members is going to have a lot of implications. Before I get to that just some good news for those of us who think the EU is a good thing. Another thing that I think was discussed here the day after the referendum was the risk of disintegration. Would Britain be the first domino to go? Would other countries then say well the British have left, let's have a referendum? Would we consider leaving as well? Would it mean the end of the European project? There are certainly Eurosceptic governments in Europe but the idea that there are a whole load of referendums on the EU coming down the line. I think that's gone at least for the moment and it shows up in public opinion as well. The very latest Euro barometer survey taken in the autumn of last year, 43% of people thought the EU was a positive thing. That was not quite to pre-Euro crisis levels but the highest level for a long time. So no sign that there's been a continued and other Euro barometer data support that view. There's been no sign that the UK's departure has caused people to become more Eurosceptic in most member states if anything it's done the reverse. In terms of how the EU could change, Europe I think will have less global influence without the UK, big member states, something like Iran dealing with other countries in the wider world. EU becomes less transatlantic, people may scoff at the special relationship and particularly with the inhabitants of the White House at the moment but it is important that the British have a strong relationship. Europe is weaker vis-à-vis Russia, clearly relations between the democratic Europe and Russia have deteriorated. And also what will Europe look like without the UK? Well I think the Eurozone shows to a large extent what it would like. One country, the biggest country becomes more influential, can be beneficial, the other maybe not so beneficial. What about the economic and financial consequences in fora like the IMF, the WTO? Again Europe will have a smaller voice, will no longer be the biggest market in the world without the UK. UK GDP out of the EU, overall GDP and we fall slightly below the US. So as a single market we come a little bit smaller. Again that's not transformative but I think it will erode influence if we're a smaller market. Again being a smaller market, less attractive place to invest overall, become less liberal externally. If we look at the 28 members in terms of their views on free trade Britain has always been at the free trading end of the spectrum. Taking Britain away will shift the centre of gravity among the 27. I think towards if not a more protectionist but certainly less enthusiastic towards free trade. And less again on that spectrum in terms of pro-business, liberal, economically liberal. The British were at the more liberal end of the spectrum and again the likelihood is that the EU will become less liberal when it comes to freeing up. For example, the big piece of the single market that hasn't been brought close to completion trade and services within the EU. And the backstop. Right, so where to start? I think there's a lot still that will come out about how the backstop evolved and all of the machinations around it. There certainly was intense frustration on the EU side in the summer and autumn of 2017 when things weren't moving. We were moving towards the deadline for the closure of the first stage of talks and intense frustration on the EU and Irish side that things weren't moving in the way they should. November 2017, a decision was taken to push the backstop on the table. In my view it was one of the biggest calls in the history of Irish foreign policy. It was a dramatic decision seeking a guarantee from a country that part of its territory would remain in the customs territory of another entity. I can't find an example of that in the history of global trade. The EU for example doesn't insist or has never insisted that let's imagine that the European part of Turkey would remain, would be in the customs territory of the EU. The US doesn't insist that the northern states of Mexico would be in the customs territory of the US. This was a pretty dramatic demand. Clearly that's changed in the evolution of the backstop. Problematic for many people in Britain for different reasons and the aspect of the single market in terms of being in a single market. We had a constitutional referendum about joining the single market. Markets have constitutional implications in terms of the making of laws and the interpretation of laws which law is supreme. The big issue around all of this is that many of these questions are binary. You're in one market or you're in the other. You apply one common external tariff or you apply another. These are not things that can be fudged. It's not like the EU budget where you can go on all night and just give in various different ways and everybody can give a little and come to an agreement. These are very binary matters where given the way that this has evolved many of these issues have become politically totemic, very difficult for people to back down. Unfortunately it seems to me that given the binary nature of these issues that unless one side backs down we're heading for a no deal. Let me just conclude this day week to remind you this day week we have a stellar panel of brexitologists who will be here giving very different views. Including views very different from mine who will be here to give perspectives exactly this time next week. I'll leave that up there for people who's tired. Thank you.