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In 1971, after the Arms Crisis, Neil Blaney is expelled from the Fianna Fáil. This action causes outrage throughout his constituency of Donegal, and with his formation of the Independent Fianna Fáil, feelings run even higher.
A militia, the Donegal Brigade, is set up - initially under the control of the nascent Provisional Irish Republican Army and with the express aim of providing military and other support for the nationalist residents of Derry. However, the Brigade also attracts members from the minority Protestant population of East Donegal, who begin to steer it in a rather different direction. Influenced by Kennedy Lindsay, they try to position the Brigade as an ostensibly non-sectarian self-defence militia, which has the independent status of the entire Province of Ulster at its heart.
Initially, faction fighting within the Brigade leads to a spate of murders by both sides. But in Donegal there is less of an appetite for sectarian strife than in Northern Ireland per se. The Brigade's leaders approach Blaney with a radical proposal - declaring the independence of Donegal from the Republic of Ireland. Within the IRA, it is argued that this is a step along the road to a 32 county socialist republic - the IRA-aligned brigade members argue that the new entity will be dominated by themselves, and will be easy to influence along these lines. The Ulster Nationalist faction persuade themselves that this will be a first step to a full Ulster dominion, within the Union but with the independence of Canada or New Zealand.
Within the wider Republic of Ireland, these developments are barely noticed, until independence is actually declared by Blaney and Jim Devenney on January 30th, 1972. In Northern Ireland, British Army troops mass on the Donegal borders with Fermanagh, Tyrone and Derry, anticipating some form of incursion. A Civil Rights parade in Derry city takes place peacefully - the expected heavy British Army presence is instead occupied at the frontier. The day passes without incident. The British Government announces that this is purely an internal matter for the Republic of Ireland.
The Irish Government condemns the declaration unreservedly, and orders the arrest of Blaney and Devenney and that troops stationed in Finner Camp, Lifford, and in Bundoran disarm the Brigade. However, it soon becomes apparent that any attempt to enforce these orders will be greeted with a mutiny; in what becomes known as the "Irish solution to an Irish problem", the government continues to virulently oppose the declaration, while in practice accepting it. Courts, taxation, education and infrastructure is soon under the control of the Provisional Authority of Donegal. Meanwhile, Ireland is keen to proceed with its application for membership of the European Economic Community. In the course of these negotiations, it becomes clear that status of Donegal may pose an obstacle. With the Mullingar Declaration of September 1972, the Irish government reaffirms its territorial claim over the entire island of Ireland, including both Northern Ireland and Donegal, while recognising "the political realities of this time" and declaring that it will not assert this authority in either case without the consent of the majority of those governed.
Over the next year, the Republic of Ireland and the United Kingdom of Great Britain and Northern Ireland join the EEC. The political situation in Northern Ireland stabilises, as the Provisional IRA fail to attract significant support, and The Troubles decline to the status of an occasional shooting incident directed at British Army troops. The Mullingar Declaration also has the effect of improving Anglo-Irish relations, especially as they pertain to Northern Ireland. The Sunningdale Agreement follows, in which the British Prime Minister Ted Heath declares Britain has no "selfish or strategic motive" in retaining sovereignty over Northern Ireland, and gives guarantees that the civil rights of the Catholic community will be upheld, while the newly elected Taoiseach Liam Cosgrave agrees that the principle of consent will be set forth in a constitutional amendment, which will contain an aspiration to unity, but not assert sovereignty over territory.
The Donegal State itself becomes an unstable hub of smuggling and a proxy, low-level version of the inter-communal strife in Northern Ireland from 1968 until 1973. Furthermore, smuggling and organised crime gangs use it as a base for activities not only throughout the island of Ireland, but beyond. This situation continues throughout the mid to late 1970s, and early 1980s. In 1982, with the election of Garrett Fitzgerald as Taoiseach, and the close working relationship he forms with Margaret Thatcher, there is a determination among politicians in both the Republic of Ireland and the UK to solve this problem once and for all.