The economics of a United Ireland

The potential reunification of Ireland is one of the most complicated and politically sensitive questions in Europe. For years it was off the agenda, but Brexit has dragged it back to the center of debate. In May 2021, Northern Ireland marked a centenary of existence, but its future looks very uncertain.

Opinion polling in Northern Ireland shows a consistent trend toward growing support for Irish unity, and, for the first time, the gap between those for and against is close to margin-of-error territory. A poll in April 2021 by LucidTalk for The Sunday Times showed support for "yes" to Irish unity at 43%, compared to 49% for preserving the status quo.

The sensitivity of the issue for many unionists (who favor remaining in the UK) means that there has been little preparation for the consequences of a possible referendum, generally referred to as a border poll. The Irish government has also been reluctant to push the issue. 

Understandably, politics and culture are the primary issues, but the economic dimension is also very significant. If Northern Ireland and Ireland were to become one state, the integration of their two economies would be complicated and costly, at first at least.

No peace dividend

Even though both share a relatively small island, the Irish and Northern Irish economies have been on different paths for much of history.

Northern Ireland's economy was once far more industrialized and developed, but that situation has been reversed as the republic's economy powered ahead and Northern Ireland became increasingly reliant on the British government plugging its annual budget deficit.

"It has been pretty clear for quite a long time that Northern Ireland's economy has been underperforming," Edgar Morgenroth, professor of economics at Dublin City University, told DW.

He said there had been no "peace dividend" for Northern Ireland's economy since the Good Friday Agreement peace deal of 1998. In his view, there has been a lack of investment into things that would drive economic development, such as education, enterprise development and infrastructure, in favor of the kind of investment that simply props up living standards and supports incomes.

"Northern Ireland has a higher need for social housing than anywhere else in the UK," he said. "It has more people on disability payments, social welfare payments, etc., so a lot of the money goes into supporting the lives of people and very little goes into developing the economy."

No such thing as a free United Ireland

That brings us to a big, roughly €10 billion ($12.3 billion)-shaped question to be answered at the outset of any discussion on Irish unity: That's the amount of money the UK Treasury annually transfers to Northern Ireland to make up the shortfall in its revenues.

"The Northern Ireland economy is absolutely dependent on the subvention from London," said Morgenroth. "That subvention, if it had to be found in the budget in Dublin, would have a very significant effect on the overall macroeconomic sustainability of budgets."

In the Republic of Ireland, polls show strong and consistent support for Irish unity, often comfortably around the 70% mark. However, that number drops dramatically when people are asked would they be willing to pay higher taxes in order for it to happen.

Morgenroth believes that Northern Ireland's current reliance on budget support would not be sustainable if Irish unity were to become reality. "Something will have to give," he said. "But that means removing supports from certain things and that then has an implication for people's standards of living and that is never going to be popular."

He does think that the EU — having long supported the peace process — might be willing to step in with much-needed fiscal support.

Lessons from Germany

Another view is that, despite these budgetary issues, Irish unity would have a sufficiently transformative effect on the dynamics of the island's economy to rapidly increase GDP and help it chart a different course. In two studies led by Kurt Hübner, a professor at Canada's University of British Columbia, research found that Irish unification would bring strong positive effects in an all-island economy.

Hübner told DW that, though the study assumed optimal policy interventions from a united Irish government, he was convinced that unification would transform the Northern Irish economy in particular, mostly through attracting foreign direct investment and creating efficiencies through mergers.

Both Hübner and Morgenroth are German natives who studied the reunification of Germany in detail. They say its example should provide salient lessons should Irish unity happen.

Morgenroth points out that German unification has cost the country well in advance of €1 trillion, yet as an idea, still commands very strong support. But he also says that there is still up to 30 years of economic integration left to be done in the country, and says a reunified Ireland may have to brace itself for a similarly long road.

Hübner said Ireland has an advantage that Germany did not, in that in theory it has more time to prepare for reunification. But he is convinced that whenever it occurs, Irish unification makes more economic sense than the current situation.

"Purely from an economic perspective, there may be more support towards unification," he said. "Besides the political, the pure economic logic moves towards unification. There is no doubt about it."

A disappearing country?

The question of what a United Ireland would look like remains as elusive as ever, and that means it is very difficult to accurately model a unified economy.

The rate of social welfare payments, which state would cover pension contributions, and the sensitive issue of which health care system would prevail are all major questions in their own right.

In Northern Ireland, even issues like economics can break down along tribal or political lines. But Alex Kane, a political commentator who previously worked for the Ulster Unionist Party, believes Brexit has created a fundamental political shift.

Pointing to the increasing flight of unionist voters towards the center-ground Alliance Party, he told DW: "It doesn't mean that they [former unionist voters] will vote for a United Ireland. But it does mean that they have become uncomfortable with some manifestations of unionism."

He believes that many could be convinced about Irish reunification by economic arguments they wouldn't have even listened to prior to Brexit, as well as things such as the chance to be part of the EU again.

He acknowledges though that for many, the question of economics may ultimately play second fiddle to the far more vexatious question of identity.

"Even some of the unionists who may be able to get around the economic stuff ... it's an enormous psychological challenge to see that your country would have disappeared."