Paschal Donohoe (Dublin Central, Fine Gael)
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I, and my officials, have regular meetings and discussions with officials from the Central Bank of Ireland, in which Brexit is a regular topic. This engagement has enabled myself as Minister and my Department to ensure that full account of the impact of a hard Brexit is being taken into account.

The Central Bank has statutory responsibility for financial stability. It has been working on Brexit related issues since before the UK Referendum. It is working to ensure that financial services firms are adequately prepared to cope with the possible effects of Brexit, with as little disruption for consumers as possible. This work is being done on the basis of plausible worst-case scenarios. The Central Bank will continue to work with financial services firms and actively engage in constructive fora.

In terms of my Department’s engagement with the Central Bank;

- Brexit has been a standing item on every meeting this year of the Financial Stability Group (FSG), which comprises the senior management of the Department of Finance, the Central Bank and the NTMA.

- In order to further co-ordination and co-operation on Brexit issues, the FSG established a Brexit Contact Group (BCG), which has met 10 times this year. The BCG consists of officials from relevant areas of the FSG agencies, provides a vital forum for sharing information on Brexit-related financial services issues and for providing me with detailed information on these matters.

- The FSG also established a sub-group to deal with the particular issue of a Central Securities Depository, which is an important piece of Post Trade Market Infrastructure. The Department of Finance and the Central Bank are continuing to engage with Euronext (formally the Irish Stock Exchange) and other relevant stakeholders including European Authorities to ensure that a settlement solution, that minimises disruption to the Irish market post-Brexit, is found. This remains a priority.

Furthermore, the Department has been working to ensure that the Irish economy is in a good state of resilience to withstand a No-deal Brexit. Over recent years, Ireland has laid the foundations for a solid and sustained economic recovery. Indicators such as consumer spending and labour market developments are consistent with an economy that is maintaining momentum.

Since the UK referendum in 2016, all of our national Budgets have been framed to prepare for the challenge of Brexit. The economic and fiscal policies which we have pursued have placed Ireland in a stronger position to ensure that the economy will continue to remain competitive in the face of future economic headwinds.

Budget 2019 continued the overall approach of prudent financial management to strengthen the resilience of Ireland’s economy against the backdrop of heightened uncertainty, including from Brexit, including through:

- eliminating the headline deficit;

- achieving the medium-term budgetary objective;

- building up the Rainy Day Fund;

- reducing the debt burden;

- investing in infrastructure to boost competitiveness and productivity; and

- investing in education.

The focus of Government budgetary policy is on having the appropriate fiscal stance. This is not measured on the basis of what is legally permissible within the fiscal rules but on what is right for the economy at this point in the cycle.

From a budgetary perspective, this facilitates the building-up of fiscal capacity which can help mitigate against future negative risks and potential shocks.

In an increasingly unpredictable external environment, continued fiscal sustainability remains a priority. Specifically, it is currently projected that Ireland will achieve its medium-term budgetary objective of a balanced budget in 2019.

Paschal Donohoe (Dublin Central, Fine Gael)
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The Government has always been clear that Brexit, in whatever form it takes, will have a negative economic impact on Ireland. Indeed, the Department of Finance has been to the forefront in assessing the impact of Brexit on our economy – commissioning joint research with the ESRI on the issue, including before the actual referendum. What is clear from this research, and other studies, is that the harder the Brexit the more negative the impact for Ireland.

My Department’s forecasts underlying Budget 2019, published in October, incorporate, as a central scenario, that the UK will make an ‘orderly’ exit from the EU. This central scenario involves a transition period being agreed that extends or replicates existing frameworks until end-2020, i.e. the UK is assumed to remain in the single market and customs union during this period. From 2021 onwards, the baseline forecasts assume that the EU and UK will conclude a free trade agreement.

My Department has also recognised the risk of a disorderly Brexit and has, therefore, set out an assessment of the potential economic impact of Brexit of the central (‘orderly’ exit) scenario and an alternative (‘disorderly’) exit scenario.

i. Central scenario = Orderly exit: transition period followed by a Free Trade Area (FTA);

ii. Disorderly exit = Exit of the UK without a transition period or trade agreement -WTO arrangements apply with immediate effect.

The results of this analysis are outlined in the Budget 2019 Economic and Fiscal Outlook. The analysis shows that over the medium-term (i.e. after five years), under the central scenario, which is incorporated in the forecasts, the level of Irish output would be close to 2 per cent below what would be the case under a no Brexit situation. Under the ‘disorderly’ exit scenario, the level of Irish output would be around 3¼ per cent lower than under the no Brexit situation.

This analysis explicitly recognises that these estimates may not capture the full impact and that they are more a minimum than a maximum. It also highlights that in the event of a disorderly Brexit, there would be further negative material impacts on Ireland, particularly in the early years, arising from issues such as regulatory divergence along with significant market volatility, further sterling depreciation, and disruption to trade with the UK. Further, these impacts would be have a disproportionate impact on Ireland relative to the rest of the EU.

Analysis carried out jointly by my Department and the ESRI has shown that, over the long-term (i.e. after ten years) in a no-deal Brexit scenario, the level of output would be almost 4 per cent below what it otherwise would have been in a no-Brexit scenario. The level of employment in Ireland would be 2 per cent lower, with the unemployment rate nearly 2 percentage points higher.

I note that a number of assessments of the economic impact of Brexit on the UK were published lastmonth. Overall, these assessments find that Brexit will have a more negative economic impact on the UK than previously assumed. It is not unreasonable to expect a commensurate impact on Ireland. In this context, my Department is currently updating its analysis of the impact of Brexit on Ireland.

While it is still Government’s view that a ‘no deal’ outcome remains unlikely, we are planning for all scenarios. It is imperative to boost the resilience of the Irish economy in order to minimise, in so far as is possible, any future disruption. Since the UK referendum in 2016, all of our national Budgets have been framed to prepare for the challenge of Brexit. The economic and fiscal policies, which we have pursued, mean that the economy is now in a better position to weather the impacts of Brexit.