The contentious battle regarding the expenses correlated with the reunification of Ireland has come to the surface after quietly brewing in academic circles for a few years. This week’s projection placing the annual cost to the Republic’s treasury at a maximum of €20 billion thrust it into the media spotlight, including the front pages and radio discussions.
The economic estimations provided by economists John FitzGerald and Edgar Morgenroth in a document for the Institute for International and Economic Affairs (IIEA), which mentions this figure, clarify its significance and the motives behind it. Consequently, these elucidations allow us an insight into the advocating foundations of the controversy; examining why the anticipated monetary implications of an undivided Ireland vary so drastically.
The IIEA breakdown specifically scrutinises the fiscal aid from UK’s treasury for Northern Ireland, known as subvention, and the repercussions of its elimination for the Republic in an amalgamated economy. The broad economical implications of unity are deliberately omitted in this analysis, although potential pressures to escalate allowances, pensions, and public wages in the North to match those of Republic’s and the associated hefty expenses are taken into account.
Alternative assumptions by economists and politicians have led to conjectures about the cost fluctuating between €3bn and €6bn. The precise answer is elusive, revolving around the projection of how the negotiations would transpire.
Therefore, we can identify two primary arenas for the debate. Initially, calculating the financial obligations that would shift from the British treasury to the Irish one post-reunification. Professionals such as FitzGerald and Morgenroth deduce that the majority of the annual subvention – which was almost €12 billion in 2019, but has since increased due to the pandemic – would rest on the Irish Treasury post unification. However, the extent of this cost is unknown; it centres on factors such as Northern Ireland’s potential liability for its portion of the UK’s national debt and whether UK’s treasury would cover the pension liabilities accrued over years, payable after unification. Detailed discussions to resolve such issues would likely be required following a unification vote.
The paper by IIEA suggests that the Irish treasury could face charges of approximately €10 billion annually. However, the exact amount is hard to gauge, with various politicians and economists hypothesising a likely cost between €3 billion to €6 billion, depending on differing suppositions and how potential negotiations may unfold.
As the potential economic aftermath of unification presents itself as the next battlefront, the complexity of this unforeseen venture’s dynamic impact cannot be overlooked. Despite drawing valuable insights from Germany’s reunification in 1990, inherent unique circumstances make the Irish case distinctive. Connected to public finance impact, the IIEA paper hypothesises immediate stress to match welfare and public pay rates in the North to those of the Republic, thereby doubling the previously speculated costs to €20 billion annually.
But the ramification of unity would cast a broader net as Northern Ireland breaks away from the UK and integrates into a larger Irish economy fully equipped with EU membership. Some researchers, notably from the University of British Columbia, take a more optimistic outlook predicting enhanced economic benefits amounting to tens of billions over seven to eight years, mainly fuelled by increased investment and productivity due to unification. However, this foresight appears overly optimistic, as while productivity and investment can be bolstered in Northern Ireland, it can’t happen in an All-Ireland economy without solid strategies.
The transition period and the future financial support for Northern Ireland’s treasury following a vote in favour of unification prompt further deliberation.
Making sense of this scenario, with copious research and varying opinions, is daunting. It seems apparent that if the Republic’s voters face a yearly financial liability amounting to €20 billion or even over €10 billion, the idea of unification might face rejection given the implication of significant tax hikes, either immediately or in the foreseeable future to repay borrowed funds. Despite varied perspectives on the actual cost, the inevitable withdrawal of the UK exchequer in a united Ireland is one reality that cannot be disregarded.
The terms and conditions of an eventual unification process between Ireland and Northern Ireland remain undefined crucially including the length of a potential transition period. More importantly, how Northern Ireland’s treasury would be sustained during this time and beyond raises significant questions. It is a misconception that a vote for unification could occur on a Friday and by Monday, Ireland would be united, given the vote is in its favour.
The second part of planning involves examining Northern Ireland’s economy, specifically its low productivity levels, which has rendered it one of the UK’s poorest regions. ESRI research conducted by Seamus McGuinness and Adele Bergin delves into the causes, identifying reasons such as insufficient education, inadequate infrastructure investment, and ineffective industrial policies.
There are expenses involved in rectifying these woes and progress will be gradual. Investing in education is a key area of focus, although it may take time to yield results. Alternatively, attracting overseas capital could result in faster benefits. In the wake of Brexit, the suspension of Stormont, and ongoing uncertainties regarding political stability, a united Ireland with political stability could be an attractive prospect for investors who were previously deterred. In a united Ireland, a single campaign to attract foreign direct investment could be conceivable, which currently presents challenges due to disparate offerings. However, for this to succeed, it would necessitate the expectation of robust political stability post-vote.
The conversation moving forward must focus not on vague concepts of immediate dynamic leaps towards unification, but on how Northern Ireland’s economy can be revamped to capitalise on new opportunities.
Quantifying the cost of the necessary investment in Northern Ireland and forecasting an accurate pay-off remains a challenge. Yet, a thorough evaluation of these factors must be incorporated in the proposal put forth to the voters. FitzGerald and Morgenroth’s work kickstarts this critical public dialogue whilst emphasising that any dialogue cannot disregard the subvention.
The upcoming discussions should focus not on ambiguous ideas of a sudden dynamic transition post unification, but rather on how to enhance Northern Ireland’s economy to capitalise on new possibilities. It must be discussed who will bear the financial burden, for instance, would there be any assistance from EU funds? Along with the long-term monetary return on such an investment. These considerations need to be incorporated into a model that clearly lays out how a unified Ireland would function constitutionally and addresses the delivery of public services such as healthcare.
Unless these crucial planning stages are followed, the discourse leading up to the vote will merely revolve around catchy phrases. The Brexit-bus incident in the UK demonstrated the type of disinformation that fills the void when adequate research is neglected.