• Region gets most per-capita EU aid of any part of U.K.
  • Sectarian split seen complicating regional government response

Celebrating the battle that ensured Protestant rule of Northern Ireland more than 300 years ago, residents of the Cregagh housing project in Belfast belted out “Simply the Best” and burned Irish flags and a figurine of the Virgin Mary on a bonfire that towered over the neighborhood’s row houses.

Gritty Protestant districts like this voted mostly for Brexit in last month’s referendum. Most of Northern Ireland’s Catholics voted to stay in the European Union with the Republic of Ireland.

A bonfire stands unlit in the Cregagh housing estate.
A bonfire stands unlit in the Cregagh housing estate.
Photographer: Marc Champion/Bloomberg

“How much worse could it be?” said 23-year-old Jonny Simpson at the celebration on the eve of the July 12 holiday, explaining why he favored Brexit as he stood on a street festooned with Union Jacks.

A lot worse, is the answer among an increasing number of politicians and economists here, where unlike the U.K. as a whole, Brexit got less than half the vote on June 23 -- 44 percent to Remain’s 56 percent.

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The most dependent of any part of the U.K. on EU financial support, Northern Ireland faces the greatest potential losses. Politically, the vote has exposed again the divide between Catholics and Protestants that led to decades of violence before a 1998 peace deal. The enduring split is mirrored in the opposing positions of the two main parties that share power here, for now paralyzing the provincial government’s efforts to try to limit the economic fallout.

No Reaction

The Welsh and Scottish executives set out plans for how to respond to Brexit within days of the vote. “In Northern Ireland? Nothing,” said Steve Aiken, a legislator from the opposition Ulster Unionist Party and deputy chairman of the parliament’s Committee for the Economy. “The government isn’t fit for purpose to deal with a crisis,” he said over coffee in the largely empty halls of Stormont, the imposing Belfast building that houses the regional legislature and executive.

Though he’s a unionist and a Protestant, his party opposed Brexit. He catalogs the benefits Northern Ireland enjoys from EU membership: billions in aid payments and subsidies, funding for roads and other infrastructure and thousands of low-wage workers from eastern and southern Europe who are key to Northern Ireland’s farm and food-processing industries.

Northern Ireland gets more EU money for each of its 1.8 million residents than any other part of the U.K., a total of 3.5 billion euros ($3.9 billion) in the bloc’s 2014-2020 budget. That includes about 100 million euros a year to help soothe sectarian tensions. Farmers, many of whom voted for Brexit, are especially dependent, with the region getting three times the national average in per-capita agricultural aid.

Brexit also threatens to throw a wrench in Northern Ireland’s plan for economic revival, a cut in the corporate-tax rate to draw foreign investors.

Bar chart showing UK gross household disposable income by region.
Bar chart showing UK gross household disposable income by region.

“The next five years were already going to be very hard for Northern Ireland and this will make it harder,” says Richard Ramsey, chief economist at Ulster Bank in Belfast. “I don’t see how we avoid recession next year.”

One fear that was raised in the immediate aftermath of the Brexit vote now seems less immediate here.

Few are concerned that the call by Martin McGuiness, leader of the Republican Sinn Fein party, for a post-Brexit vote on unification with the south will be realized any time soon. Polls have consistently shown only about 20 percent support for leaving the U.K. That could change if Scotland, the part of Britain with the closest economic and cultural ties to Northern Ireland, were to vote to secede and remain in the EU.

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“People here are a bit annoyed too, because the vast majority voted to remain,” says Finn Poland, a 23-year-old Catholic who works for BT, the telecoms company. “This is the last thing we needed politically because the two main parties were on either side of the divide on Brexit.”

Hardening borders between the north and south could complicate travel and trade, he said, while “what with the sectarianism, it’s already difficult to attract foreign investors.”

Fragile Society

Nearly two decades after the Good Friday accords put an end to 30 years of violence between Catholics and Protestants, Northern Ireland has come a long way and there is no imminent risk of a return to the fighting. But this remains a fragile society.

A “peace wall” stands across the street from Poland’s parents’ house, separating their Republican neighborhood from the unionists on the other side. Watching his parents’ dog, he said it’s still too soon to take the 25-foot-high barrier down. Bottles and rocks sailed over the wall during the bonfire celebrations on the other side last week, he said.

Poland comes from a staunchly Republican family. His aunt remains disabled from a plastic bullet fired by security forces that hit her when she was 12. The family still lives just off the Falls Road, a famously Republican area of Belfast whose tribute murals to the Irish Republican Army are now tourist attractions. 

He said his generation is less set in its views, adding that he wouldn’t currently vote to unite the north and south. But a rough separation from the EU could isolate the north from the Republic of Ireland and rekindle tensions. Scottish independence also could change his views.

Brexit backers note that Northern Ireland would get its share of the money the U.K. now contributes to the EU back once Britain leaves the bloc. Border difficulties with the Republic of Ireland should be manageable, they say.

Lost Aid

But it’s unlikely U.K. funding would be enough to make up for the lost aid from Brussels. In addition, EU-funded infrastructure projects and community workers would have to compete for that money with priorities such as health care and policing, at a time of falling growth and tax revenues.

“In all the discussions that go on now, Northern Ireland will be at the bottom of the pile,” said Aiken, the legislator. “All the attention will go to keeping Scotland in the U.K.”

Although the Invest Northern Ireland agency remains confident about the outlook for attracting the foreign companies that have helped boost jobs and growth over the last decade, Brexit has clouded the outlook.

Northern Ireland’s plan to cut its corporate tax rate to 12.5 percent in 2018 was to have given the region a big advantage over the rest of the U.K. and a level playing field with Dublin.

‘Disappointment’ Seen

But post-Brexit, companies deciding whether to locate in the north or south of Ireland will have to consider any difference in market access to the EU that results from the U.K.’s divorce settlement with Brussels. The U.K. government, meanwhile, has been cutting corporate tax rates and, in the wake of the referendum, proposed a further reduction to 15 percent. That would severely erode the advantage Northern Ireland hoped to gain.

“The potential for disappointment is significant,” said Ramsey, the Ulster Bank economist.

On the Cregagh estate, none of these concerns seemed to play on the minds of a unionist community attracted by arguments for Brexit that offered both change and a boost to British sovereignty and their sense of belonging with the U.K.

“So long as Northern Ireland remains British it doesn’t matter anything to me, Brexit,” said Paul Osborne, a 58-year-old retiree, as the bonfire’s tower of wooden pallets began to collapse and burning tires rolled out toward the crowd.

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