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Thursday 8 December 2016

British election may yet have disastrous consequences for us

Even before we know the final result it is clear that the 2015 British general election will be the most closely-fought contest since at least February 1974.

Not alone is no single party likely to win anything close to an overall majority in the House of Commons, neither is any of the possible coalition pairings; Labour-Lib Dem, Conservative-LibDem even Labour-SNP, guaranteed an overall majority.

The most likely outcome on Thursday is a hung parliament followed by days, perhaps even weeks, of haggling between the major parties as they attempt to construct a government from the mess they have been left with by the electorate.

Already we are beginning to see the consequences of an extended period of political instability with the value of sterling falling sharply against other major currencies on the foreign exchange markets last week.

instability

An extended period of political instability will depress the value of sterling still further.

This will be bad news for Irish exporters and our tourist industry, both of which have benefited from the recent strength of sterling against the euro.

But a bout of renewed sterling weakness could turn out to be the least of our worries after Thursday.

From Ireland's point of view the worst possible outcome would be a majority Conservative government.

With Prime Minister David Cameron's party committed to holding a referendum on Britain's continued membership of the EU by mid-2017, we could find ourselves dealing with the consequences of British withdrawal from the EU within two years.

The consequences of such a withdrawal for this country would be severe. We still send 16pc of our exports of goods and 19pc of our services exports to the UK.

In fact the official trade statistics understate our true dependence on the UK as the proportion of exports from indigenous firms, who spend much more on Irish raw materials and labour than the multinationals, going to the UK is much higher.

In a worst-case scenario we could see the customs posts being re-erected between Dundalk and Newry, Britain out of the European Single Market and Irish companies paying customs duties on their exports to the UK.

"The consequences of [British exit from the EU] would be significant. I think it does constitute a real risk, albeit out a few years", warns Alan Barrett, head of the ESRI's economic analysis division.

The good news for this country is that a Conservative government, with the party either governing on its own or in coalition with a smaller party, is probably the least likely outcome.

More likely is a Labour government or a Labour-Lib Dem coalition propped up by the Scottish National Party, who look set to win most or all of Scotland's 59 Westminster seats.

So what's the problem? The Conservatives won't be returning to government, there won't be referendum on British membership of the EU in 2017 and it won't be pulling out of Europe. Why should we be worried?

unchartered

Unfortunately things aren't that simple. While the Conservatives probably won't be in government after Thursday they will probably still be the largest party in the House of Commons, particularly if the SNP does as well as expected in Labour's former Scottish fortress.

This takes us into uncharted waters. One of the rules of Britain's 'unwritten constitution' is that the party with the most MPs gets to form a government.

The last time the second-largest party got to form a government was when the Liberals briefly propped up a minority Labour administration in 1924.

If, or more likely when, this happens the Conservatives will raise hell. Come the next British general election in 2020 they will embrace English nationalism and out-UKIP UKIP.

With, or more likely without, Scotland a referendum on British EU membership is probably inevitable by the early 2020s.

Even if the Conservatives lose then, the crisis that would erupt if Britain left the EU has merely been postponed for a few years.

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