The time is coming once again for the Irish government to publish its annual Summer Economic Statement, which will be composed mostly by Finance Minister Paschal Donohoe. This years budget will be especially tricky, given the ominous threat of Brexit on the horizon.
Donohoe’s strategy to combat the issues that are likely to arise given the likely succession of the United Kingdom from the European Union are related to the type of Brexit that occurs. According to the Economics and Social Institute, there are three scenarios that should likely be considered when drawing up a detailed economic plan for the future.
In general, it is an ideal practice to compare all of these possibilities to a counterfactual scenario where no succession occurs. The three main possibilities, surrounded by economic and political uncertainty, are deal, no-deal, and disorderly no-deal.
The deal scenario is described as the “UK making an orderly agreed exit from the EU” which “ involves a transition period covering the years 2019 and 2020, and a free trade agreement between the UK and the EU27 thereafter.”
The no-deal scenario would be the UK exiting the EU without a deal, but with an orderly transition period. This period would allow the two parties to arrange WTO tariff arrangements on trade. It is most likely that “there will be non-tariff measures,” but “services trade would be negatively impacted.”
Finally, the disorderly no-deal Brexit would be very similar in consequences to that of the no-deal scenario, but would also have “an additional disruption to trade in the short-run.”
From recent reports, it can be gathered the the finance minister is likely going to be making two plans that will encompass the effects of a deal or no-deal Brexit. These decisions will have huge impacts on the type of budget that Ireland will implement, given that one will result in the need for an expansionary budget while the other will result in the need for a contractionary budget.
Given the nature of this issue, there way need to be approval of both budgets by the Irish government. The one problem with this is that everything written is a form of guess work, and may need to be edited when the actual event begins to play out substantially in the UK and Irish economy.