Business firms will defer investment in response to the uncertainties arising from Brexit and there is a heightened risk of a short-term downturn in Britain and Europe. This will dampen economic recovery in this country and the UK chancellor’s plan to cut corporation tax is a further competitive threat.

The search for a silver lining has commenced and several enthusiastic commentators are predicting a compensating influx of financial services companies out of London into Dublin. John Moran, the former Department of Finance secretary, writing in The Irish Times, is so confident that he has even suggested that the tsunami of incoming banking refugees would spill over into one of the provincial cities. Mr Moran hails from Shannon-side but has diplomatically declined to identify which provincial city he has in mind.

I am not so sure that any great influx is likely or even desirable. The London financial services industry could lose some rights of access to the European market and firms are already exploring their options. But the extent of the problem is unknown at this stage and it could be several years before the new regime is clarified. Firms will make contingency plans, but will avoid major commitments until the fog lifts.

Complex regulations

There are scenarios in which the exodus from London could be limited. International financial regulation is complex, the negotiations will take many years and it is possible that a formula will be found which is less threatening to the city of London.

Even if Britain gets a poor deal on financial services and firms choose to re-locate to an EU country, there will be choices. Paris and Frankfurt have long fancied themselves as financial centres competing, unsuccessfully in the main, with London. Several other established financial centres, including Amsterdam, Luxembourg, Madrid and Milan, have also been promoting their credentials.

All of these have obvious attractions and will compete vigorously with Dublin or whichever provincial dark horse Mr Moran might have in mind. Frankfurt and Paris in particular will battle for whatever footloose crumbs may fall from London’s table and will have powerful national governments fighting their corner.

Bear in mind that some firms already in Dublin and serving the UK market could re-locate to London, so there would be swings as well as roundabouts even if Dublin wins some of the battles.

There is an important policy choice here for the Irish Government, since an influx of financial firms from London, or anywhere else, brings headaches as well as jobs. These firms need to be regulated and supervised in compliance with increasingly onerous international and EU rules. The Irish Central Bank has improved its capacity since the disastrous failures during the bubble, but it will not welcome the additional burden. More importantly, financial firms, even when effectively supervised, can still get into trouble, with the threat of rescue costs being imposed on the host country authorities.

There has been intense resistance, especially from Germany, to the mutualisation of liability within the eurozone for banking risks. Ireland had a lucky escape towards the end of the bubble when a Dublin-based offshore bank called DEPFA went wallop.

Even though it had just been purchased by an unfortunate German bank, an effort was made to stick the Irish with the rescue bill. The effort was ridiculous and was resisted successfully but it served as a warning that the big European states will try it on when they get the chance.

No banking union

There is still no proper banking union in the eurozone and some of the rules are made up as we go along. Having a large offshore financial centre in these circumstances is a bit like having an unexploded bomb in your basement. Ireland has already been on the receiving end of huge and arbitrary cost impositions during Jean-Claude Trichet’s presidency of the European Central Bank. There are no rational grounds for expecting the ECB to behave any better in future, particularly towards a small-country financial centre competing with Frankfurt. They have yet to concede that they did anything wrong during the Trichet regime.

There may well be categories of financial business which could migrate to Dublin without imposing contingent liabilities on the Irish taxpayer. For example, fund management firms may pose little risk and some will need an EU base in order to ‘passport’ their products into continental Europe. But great care will need to be taken in deciding which type of financial service operations are worth pursuing, given that Ireland’s own banks are not entirely out of the woods.

It will also be important to focus on firms likely to employ people already living, and housed, in the Dublin area. Importing large numbers of well-heeled refugee bankers into the over-priced Dublin property market is hardly a national priority.