Wolfgang Münchau :”those in Ireland in favour of EU membership should give some thought to what could go wrong”

Possibly related to my previous post…  The Irish Times republishes an interesting article by Wolfgang Münchau in the FT.  He starts with Brexit, and a necessary new direction of travel for the UK economy…

There is a risk that Brexit and the associated change in model business will go wrong. Brexit is not necessarily a bad decision. But it requires the right kind of policies to work.

The British prime minister is right to balance a hard Brexit with a shift in the direction of the UK economy away from transactional capitalism towards a more inclusive version of a free-market economy. This makes sense. One way to think about this is the theory by Mancur Olson, a 20th-century US political economist, who tried to explain why Germany and Japan did so well after the second World War. In his 1982 book The Rise and Decline of Nations, he notes that powerful lobby groups can hold a country to ransom up to the point when a shock destroys the economic system.

In the case of Germany and Japan, this point was wartime defeat that allowed both countries to reinvent themselves. Brexit could do the same in the UK. This is why a dual strategy of a hard Brexit and a shift in the nature of British capitalism is intriguing. The first constitutes the shock, the second the shift. [Olson] would have liked it.

The City will not perish in this scenario. It might even do well with new fintech-type business models, or as a deregulated financial centre, Singapore-style. But its relative weight within the British economy may well decline.

…before turning his attention elsewhere…

There is another country in Europe with an unsustainable business model: Ireland. It offers low corporate tax rates and legal tax avoidance to foreign investors. The ruling by the European Commission to force Apple to pay €13 billion to the Irish Government in taxes is a sign that this model may not be sustainable for much longer. Brussels is also pushing towards a harmonisation of the corporate tax basis – the rules of what to tax.

Dublin has been resisting such a change, but with the UK out of the EU it will lose an ally in the fight against EU-imposed tax harmonisation. Ireland has done well from its tax haven status. But this model is unsustainable.

Perhaps the confluence of Brexit and the long-term loss of a business model will persuade Ireland to follow the UK out of the EU. This will obviously depend on whether Ireland can find an alternative model inside the EU. It is possible, but not inevitable. An Irish exit will not happen unless and until there is more clarity of the costs of Brexit. It will also depend on whether the euro zone successfully manages the various crises facing it.

If all this develops as I expect – badly – the economic case for an Irish exit would strengthen. Ireland might choose to stay in the EU for political reasons. But those in Ireland in favour of EU membership should give some thought to what could go wrong. They might otherwise end up in the same place as the overconfident Remain supporters in the UK: bitter and without influence.

Read the whole thing.

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  • OneNI

    Could it be in a few years we will see Sinn Fein u turn again and return to its anti EU stance?

  • MainlandUlsterman

    wouldn’t surprise me in the least

  • Kevin Breslin

    I think everyone in Ireland whether they are for Brexit or not, whether they are from Northern Ireland or the Republic of Ireland, whether they are Nationalist, Unionist, Other, Socialist or Conservative, Europhile or Eurosceptic … should be prudent about these events between the EU and UK.

    The same author highlighted what the issue is.

    https://uploads.disquscdn.com/images/ae51a0f3609c2e553316f8dc904f6ca7908c95ea29b0fa9d6ab5fde2df2211f2.png

    The UK must be willing to trade away its privileges given to UK nationals in order to take away privileges from EU nationals.

    To even deny a minor EU right to an Estonian, Bulgarian or Romanian on illegitimate grounds means accepting the EU must treat Brits in the same manner.

  • Jollyraj

    Maybe even sooner. Something of an anomaly among political parties in that they are in the odd position of no longer being backed up by a private, illegal militia yet still not having to worry what, if anything, their voters will think if they reverse their core policies.

  • chrisjones2

    Yep…unsustainable business model and will be much more unsustainable post Brexit

    The question is what happens to the Euro zone and does Ireland exit before the fall or wait till the roof falls in first. I suspect political inertia and cowardice will lead to the latter

  • chrisjones2

    Who defines what is ‘illegitimate’ ?

  • chrisjones2

    I was watching the news tonight about the scary clown meme sweeping the Nation and couldn’t help think of another bunch of clowns at the weekend dressed up like 1970 and scaring motorists on the border.

    As ever, Sinn Fein surges backwards while the UK and Irish Government get on with a sensible agreement to protect both our countries interests

  • Kevin Breslin

    If you take away the inverted commas, that’s actually a good question and one that isn’t worked out as yet … I would assume a bilateral rights treaty would ensure there is a maintenance of “equality of status” between UK in the EU and EU citizens in the UK.

    All that will happen in my opinion is the redefinition of what constitutes equality, not the equality of status itself.

    Equality is how bilateral treaties work. Turnabout is fair play and everyone of the EU nations will certainly play turnabout.

    The UK must be willing to trade away its privileges given to UK nationals in order to take away privileges from EU nationals.

    So as a pro-Brexit (I’m assuming) Brit … what rights in other EU countries do you think is worth the UK government and their people giving up so that the same rights don’t apply to Romanians and Bulgarians in the UK?

    Non discrimination in Travel rights
    Non discrimination in Healthcare rights
    Non discrimination in Labour rights
    Non discrimination in Residency rights
    Non discrimination in Property rights
    Non discrimination in Access to Services rights
    Non discrimination in Supply of Services rights
    Non discrimination in Rights to a Fair Trial
    Non discrimination in Rights to Due Process
    Non discrimination in Rights to Social Protection

    Once Brexit occurs the UK has no EU privileges any more, just the freedom to horse trade rights in bilateral treaties, like Switzerland does.

  • mickfealty

    Maybe, but they are already on the wrong side of the Apple Tax argument by Wolfgang’s lights.

  • Kevin Breslin

    Official Ireland or the People of Ireland?

  • Katyusha

    As ever, Sinn Fein surges backwards while the UK and Irish Government get on with a sensible agreement to protect both our countries interests

    http://www.sinnfein.ie/contents/41907

    Now, where are the DUP? Seeing as they campaigned for Brexit, they must be busy lobbying for the deal they had in mind, right…?

  • Katyusha

    It’s hard to see what Münchau’s point is here. Is it that Ireland’s low taxes are unsustainable because of a future EU drive to harmonise tax rates, and they should leave the EU and remain safely as a tax haven? Or is it that being a tax have is unsustainable economically, and they should transition to a different business model before this one goes bust? His historical examples would indicate the latter, but if that’s the case, then it has precious little to do with the EU.

  • Brendan Heading

    In the case of Germany and Japan, this point was wartime defeat that allowed both countries to reinvent themselves. Brexit could do the same in the UK.

    Chairman Mao used to have a similar idea; let’s do the inevitable nuclear war now, so that communism can arise from the ashes.

    The UK is (or was) the fifth-largest economy in the world. There’s work to do, but the idea that it is somehow so moribund that we should purposely wreck it, destroying millions of lives in the process, in the hope that something better rises from the fallout is bordering on psychopathic.

  • mickfealty

    Eh?

  • chrisjones2

    The only thing psychopathic is your post …as sadly are so many of them here

    The Treasury Select Committee in February published its assessment based on all the expert evidence. The predicted downside on GDP was 0% with a maximum of +/- 2%

  • chrisjones2

    Well they were at the Conservative Conference last week but they recognise that the main deal will be between British and Irish Governments – just as is happening

  • Brendan Heading

    Chris, did you read the article ? If you did, you might have noted the part (which I quoted) where the author compared brexit to the most destructive war in history.

    – also, do you know what “psychopath” means ?

  • chrisjones2

    I was quoting a post above

  • NotNowJohnny

    I think they recognised that in 1985 too and subsequently got quite upset about it.

  • LiamÓhÉ

    It seems he is putting the 12.5% corporate tax rate and the Apple tax exploitation in the same bracket; that both are activities of a tax haven. In contrast, the Irish government would defend that the tax rate, in the absence of now removed loopholes, is fair in a low-tax economy and for a small island that is not in the core industrial area of Europe. The EU average is 22.09 according to KPMG. To some extent, it may be FDI-envy from the big continental States who see these corporates being taxed in Ireland, and in the case of Apple, not having paid these taxes during the 90s and early 2000s, so a bit outraged to boot.

  • Kevin Breslin

    what rights in other EU countries do you think is worth the UK government and their people giving up so that the same rights don’t apply to Romanians and Bulgarians in the UK?

  • chrisjones2

    No he didn’t. He pointed out that after a huge shock like Brexit economies have the chance to rapidly regenerate

  • chrisjones2

    Yes and what good did it do them. Perhaps they have learned a lesson

  • terence patrick hewett

    Wolfgang’s article is perceptive: as the 3rd industrial revolution gains traction the nature of employment is changing and rendering whole countries’ business plans redundant. The nature of employment is changing; 2 industries in the UK, those of the Arts and Sport, now employ 4 million people. And a protectionist customs union is well past it’s sell by date.

  • Brendan Heading

    Chris, you’re denying what’s there in black and white. He compared brexit to Germany and Japan post WW2.

    At least I’ll take some crumb of comfort that you understood the comparison about brexit being a huge shock, after you quoted Treasury statistics which claim no effect.

  • Katyusha

    Are we not on the fourth industrial revolution? I thought the third was the advent of worldwide digital communication, computational analysis and computer-controlled manufacturing, and global supply chains?

    It’s all moot anyway, but I thought that was where the moniker “Industry 4.0” came from.

  • terence patrick hewett

    Well yes it is up for debate: whether it is the fourth or the third: In a few hundred years time they will have sorted out what it is to be called. I think at the moment it is too early to say.

    Did it kick off with the invention of the transistor by Bardeen/Brattain at AT&T Bell Labs in 1947. That resident of Cork the Reverend Boole and his algebra: Ada Lovelace and Babbage’s difference engine.

  • Kevin Breslin

    I was thinking a fair degree of Irish people like the EU’s shift to the left.

  • mickfealty

    98% of IRISH businesses don’t. Besides, I was referencing Wolfgang imperative to consider what might go wrong if Ireland puts all its eggs in the EU basket?

  • Kevin Breslin

    The EU doesn’t put all its eggs in the EU basket.

  • NotNowJohnny

    The point is that they haven’t learned any lessons. Members of the DUP rarely do.

  • hgreen

    Cabinet doc today says a decline of between 5.4 and 9.5% in GDP. £66Bn. But hey we’ll still have our £350 a week 🙂

  • chrisjones2

    Thats almost certainly a selective leak using the worse outlying projections. The Treasury is on manoeuvres

  • chrisjones2

    Yes its a shock in that the system needs a shock too. Shocks can be bad or a stimulus to growth. That was the point he made that after the second world war there was a huge stimulus to growth

    But if you insist on the comparison then yes….being harnessed to the increasingly sclerotic EU did do immense damage and now we must recover from it

  • chrisjones2

    Well they have helped corall SF into Government

  • chrisjones2

    Who suggested that – you seem confused. The PM has proposed that all existing people who moved to the UK should have rights to remain work etc so long as their Governments grant the same rights to UK citizens in their states. I am sire that thinks like access to medical and other services can also be agreed too. In my view we might offer dual citizenship to all those who dont have serious criminal records ….now the problem is?

  • chrisjones2

    Their stand is based on principle ….but they have other principles ready in case voters opinions change

  • chrisjones2

    The EU doesn’t have any eggs of its own – it takes them from member states baskets

  • chrisjones2

    Yes and they are welcome to do so and further accelerate the economic slide. This will continue until Germany decides to stop paying. Italy is now very worrying

  • Kevin Breslin

    The member states and members of parliaments from the member states make the European Union what it is.

    Some in the UK meanwhile like to spout anti-European rhetoric about 25 European nations excluding Ireland (okay sometimes Ireland) while not realizing they have a military alliance with 25 other European members that they have no intention to break away from.

  • Kevin Breslin

    Dual nationality for healthcare access … Sorry when was Wolfe a Belgian national?

    It’s very simple, I will ask you again, because Brexit was about taking rights away from Poles and Bulgarians at the end of the day.

    It’s those who want to leave the European Economic Area who are calling the shots on that one. No EEA responsibilities, no bilateral agreements and free movement to Brits in continental Europe could be on par with Belorussians and Israelis.

    So what rights in other EU countries do you think is worth the UK government and their people giving up so that the same rights don’t apply to Romanians and Bulgarians in the UK?

    Deep down Northern Irish unionists and many other Brits know I’m right in this, and many Remain supporters were right on this since the massive demand for Irish passports pretty much proves this. Does this make British and Irish passport holders dual citizens now?

    If there really was a belief that the UK as a non-EU nation could have its cake and eat it on the travel and business rights in the single market, so many wouldn’t feel the need to hide behind an Irish passport.

    Clearly a sign they are scared of what will pass for migration control in continental Europe that has just as many illiberal, nationalistic and xenophobic demagoguery tendencies as their fellow Europeans in the UK, particularly if the UK takes a hard line and forces their hand.

  • NotNowJohnny

    The DUP played no part in SFs move into government. The DUP is, and always has been, opposed to the participation of SF in the government

  • Kevin Breslin

    Japan and Germany rebuilt from destructive Nationalist Imperialism through Transpacific and Continental networks respectively, and both high quality engineering.

    The UK unfortunately seems to be abandoning high quality engineering and science for the return of destructive Nationalist Imperialism.

    https://www.bostonglobe.com/ideas/2016/06/20/england-post-imperial-stress-disorder/uMzTTSsPk7QVnRL5o7qLtN/story.html

  • Old Mortality

    I think other EU states are now seeing Ireland’s corporation tax rate as predatory believing that profits generated elsewhere are being diverted to Ireland in order to minimise tax liability. This practice can be viewed as being inconsistent with a single market.

  • chrisjones2

    Thats why the UK wants free trade outside the EUs clsoed borders

  • chrisjones2

    Robotics / AI and Biotechnology

  • Jollyraj

    I think the ‘tax haven’ scheme is a case of Ireland trying to have it’s cake and eat it, too. Also must be irritating to the wealthier states who have seen so much of their citizens tax revenue having been diverted into Ireland over a decade or so to try to make it viable – only for the Irish to refuse to collect tax from the big corporations. Not really playing the game.

  • StevieG

    I’m not really sure of the point that Munchaus is making – or that it insightful. Is it that Ireland will lose an ally in the EU (becuase UK is heading down the ‘Hard Brexit’ route and thus the ‘shock’), being an ofshore island off an offshore island and thus more liable to bend under the political weight and thus might be better out of the EU?
    The whole European Commission initial finding on Apple has nothing to do with Ireland’s corporation tax rate and rules. It is about state-aid and is in dispute and much more nuanced than Munchau seems to imply and does not really make his argument.
    That the Commission and Council are unhappy at Ireland’s corporation tax rate is not news. Ireland still maintains the right as does all other countries in the EU to determine their own fiscal rules.
    That Ireland has a low tax rate and is perceived as an off-shore tax haven is a fact.
    That Ireland can feel somewhat agrieved with the EU and in particular the ECB after 2010 is an argument that can be made.
    Is Ireland better out of the EU than in? I do not know. Is Ireland in a worse postion for the UK exit? Absolutely.

  • John Collins

    Chris
    After WW2 the Americans, through the Marshall Plan, poured huge amounts of money into what was then a totally ‘scelerotic’ Europe. Then in 1953, with huge aid from GB, they absolved Germany from their debts. Either of them did not do this because they loved Germany or its people, but for sound economic reasons. Now its obvious that if GB gets a good deal on leaving and keeps all the benefits of the EU’ while putting SFA in, that the said EU is finished. That will lead to a weaker Europe and an impoverished Eastern Europe. I cannot how GB, or indeed ant other stronger West European country, is going to benefit from that economically. And that is before we start to think of how Mr Putin could cash in on unrest in the said impoverished Eastern lands. His antics in Ukraine may be just a foretaste of what he is capable of.

  • Sir Rantsalot

    I’ve only just stopped laughing at the “Brexit will cause WW3” claim. Now there is a claim that it will be like WW2 ! Am I getting this right? Is someone saying that moving governmental control of the UK from buildings in Brussels to buildings in London, is the same as the physical destruction of buildings, manufacturing, infrastructure, and killing millions of people? Still, I suppose its better than getting nuked !

    After March next year, I expect trading with other countries around the world will be EXACTLY like being in the Somme trenches !!