Macroeconomic & Geopolitical

Why the Good Friday Agreement is Even More Important Than You Think

April 2023 – 2 min read

There are also important economic and investment implications from the continued peace in Northern Ireland.

As the world order continues to crumble, it's hard to avoid the irony that tiny Northern Ireland has delivered an unintended boost to the cause of global integration. On this 25th anniversary of the agreement that ended one of Europe's most tragic chapters, this small island has played an unmistakable part in holding Europe together. Indeed, fears of unraveling this precious peace helped clarify the United Kingdom's continuing links to the European Union and reinforced one of the most significant political projects of our time.

It’s testament to the growing political cohesion of the EU’s 27 remaining members, which undergirds its current economic strength and highlights why investors should pay close attention.

Okay, it’s not all sweetness and light, but consider the history. Signed on April 10, 1998, the Good Friday Agreement ended decades of painful civil strife and economic stagnation. The peace that followed, though, faced fresh disruption from Brexit when the European Union insisted that goods crossing its border between north and south required inspection. There were threats to abrogate the broader separation deal, but London eventually realized that the risks of dividing Ireland anew and breaking entirely with Brussels were too high.

The Windsor Framework agreed last month struck a sensible compromise. To avoid new barriers that would again divide Northern Ireland from the Republic of Ireland, London effectively conceded it remains inalterably embedded in Europe. Brussels made its own concessions on how to enforce inspections, but it successfully defended its border and the ultimate authority of the European Court of Justice to adjudicate differences.

With the agreement in place, the U.K. can now pursue closer EU cooperation on financial services regulation and energy markets. Europe can truly get on with the business of deeper integration, stronger growth and greater political heft.

Politically, Europe has never been stronger. In the end, the departure of the European Union's second largest economy actually reinforced cooperation among the disparate continental capitals. Old chatter about ‘Grexit’ and ‘Italexit’ has evaporated. A half dozen countries are officially waiting in line to join.

Meanwhile, Moscow's calculation that the possible loss of Russian gas would weaken European support of Ukraine backfired. Constructed on entirely on the basis of international law, the European Union reacted strongly to Russia’s invasion of Ukraine. Mostly resolute action (and an unusually warm winter) helped secure enough alternative gas supplies and set the course for long delayed energy diversification.

Closer cooperation has developed as Europe has developed a political dimension in its approach to China, which they once viewed as entirely an economic opportunity. Before her visit to Beijing with French President Emannuel Macron, Commission President Ursula von der Leyen called out China for its support of Russian President Vladimir Putin and spoke of Europe needing to ‘de-risk’ its exposure and protect its technology. Views are still mixed, but the stiffening line is unmistakable.

For an investor, this political cohesion makes for a much more coherent investment, too. Just over a decade ago, European governments were tripping over themselves to design a solution for its member states reeling from the shock of the global financial crisis. Pettifogging around assistance for Greece, Portugal, Spain, Ireland and Cyprus very nearly triggered the end of its common currency project.

Now, however, the pandemic has pushed Europe’s leaders into much closer cooperation. A decision to allow larger budget deficits helped cushion the collapse in demand from lockdowns. Pandemic aid that partially compensated firms that kept their workers employed helped Europe avoid the massive spike in joblessness and subsequent inflationary transfers that plagued the U.S. recovery.

Then a commitment to boost investment for the recovery and to drive the climate transition produced the €800 billion Next Gen EU project, which will effectively be funded by jointly-issued bonds. A more flexible approach to the debt and deficit limits enshrined in the Maastricht Treaty also suggests institutions that are finally more committed to growth and the strict enforcement of rules.

And that is why investors should be taking a second look at Europe.

Clearly challenges still abound. Pension costs and immigration remain deep and emotional challenges to European leaders. But with fears of inflation and recession everywhere, the continent boasts record low unemployment, a banking system that broadly resisted recent tremors from Switzerland, economic activity measures that are solidly in expansion and continue to rise. Inflation remains high, especially in the core data, but there is no sense that the European Central Bank will fail to bring it to heel.

These are mostly cyclical indicators, but they also reflect the political maturity of European institutions. And while they seem only distantly related to ending Ireland’s civil strife, that 1998 settlement reinforces the investment case. Even those who want to leave now realize the advantages of the fabric that binds the continent together—and recognize the risks of unraveling.


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