Fianna Fáil Spokesperson for Finance Michael McGrath says there will be a need for an urgent and comprehensive response from the European Commission to the economic turmoil that will be triggered in the event of Britain voting to leave the EU.
Deputy McGrath commented, “This is the single greatest moment of economic risk that the EU has faced since the height of the Greek sovereign debt crisis. The result is on a knife edge with a number of recent polls indicating a worrying swing towards the leave campaign.
“It’s not just the UK that will suffer in the event of Brexit occurring. The European wide economy would almost certainly be sent into a tailspin. Ireland is particularly at risk. A report by the ESRI estimates that bilateral trade flows between the UK and Ireland could fall by as much as 20%.
“A summit of EU Heads of State should be called immediately should Britain vote to leave the EU. It must deliver a message similar to Mario Draghi’s “whatever it takes” declaration regarding the future of the Euro in 2012.
“We know that changing a failing policy can bring significant benefits. There was an immediate benefit when the ECB belatedly took action to change monetary policy to save the euro. It resulted in a massive fall in the borrowing costs for European nations. The tragedy of this policy change was that the ECB had for so long stuck rigidly to a failing policy.
“We’ve had false dawns in Europe before when it looked like real action was going to be taken to stimulate demand. Programmes such as the Compact for Growth looked initially like they were going to provide a basis for kick starting the European economy. However in the end they only ended up being little more than repackaging of existing plans.
“While a further loosening of monetary policy could help, the most significant response to a leave vote should be in relation to fiscal policy. This should begin with more freedom for national governments to borrow to invest. The importance of this in relation to Ireland was again highlighted by the European Commission report last week which stated “housing and infrastructure bottlenecks need to be tackled more ambitiously”.
“In addition, while each country will have its own investment priorities, there is also a clear need for co-ordination across member states to drive new policy that will benefit us all. There is considerable scope for countries such as Finland, Austria, the Netherlands and Germany to increase their own domestic spending without endangering their own budget targets,” concluded Deputy McGrath.