Irish Open New Front in European Debt Crisis as Treaty Vote Plays on Euro
Ireland will hold a referendum on ratifying the European fiscal compact after government ministers sought to frame the campaign as a vote on the nation’s determination to keep the euro.
Prime Minister Enda Kenny, speaking in the Dublin parliament yesterday, said the government will name a date for the ballot in the coming weeks. In contrast to two previous Irish referendums on European policies, a rejection wouldn’t sink the treaty, which requires support from just 12 of the 17 euro countries to take effect.
The vote will give the Irish a chance to reaffirm the nation’s commitment to the euro, Kenny said. In December, Finance Minister Michael Noonan said a ballot on the treaty would effectively be a vote on Ireland’s membership of the currency, as the government sought to avoid a repeat of 2001 and 2008 rejections by voters of European treaties.
“This referendum carries huge risks,” Thomas Costerg, an economist at Standard Chartered Bank in London, said. “The euro area is already very busy with Greece. Opening another front in Ireland is not good in terms of timing. It may increase nervousness about the future of the euro area’s perimeter.”
The vote may be held in May or June, the Irish Times reported today, without citing anyone.
German Interior Minister Hans-Peter Friedrich said Greece would have better chances of overhauling its economy and restoring growth if it left the euro area, Der Spiegel said last week, citing an interview.
Ireland, among the first wave of countries that joined the euro in 1999, was the second euro-region country to seek an international bailout after Greece. European Affairs Minister Lucinda Creighton said last month it would be hard for Ireland to remain in the euro area if it rejected a new European Union fiscal treaty, echoing comments by Noonan in December.
Efforts to portray the vote in such terms are “just scaremongering,” said Shaun Tracey, a spokesman for Ireland’s Sinn Fein, the country’s second-biggest opposition party. “We will campaign only on the wording of the treaty.”
“The government presumably wanted the referendum about as much as a turkey looks forward to Christmas,” said Eoin Fahy, chief economist at Kleinwort Benson Investors in Dublin in his blog. “This throws the cat among the pigeons and raises serious risks about Ireland’s ability to continue to receive bailout funds after next year.”
While Ireland alone can’t derail the treaty, a rejection would deprive it of possible future aid once the euro area’s permanent rescue fund goes into operation. While Ireland’s 67.5 billion ($90.8 billion) euro rescue in 2010 means the state is fully funded through 2013, the government is aiming for a full return to international credit markets next year.
Ireland’s October 2020 bonds yield 6.81 percent, down from a euro-era high of 13.8 percent on July 18, as the government reassured investors that they would be repaid, in contrast to the losses imposed on Greek bondholders.
A poll by research company Red C in January showed that 72 percent of Irish favor a referendum on the compact, with 52.6 percent of those who expressed a preference saying they would vote yes. The poll of 1,008 adults was carried out for the Sunday Business Post (POSTBSC) newspaper between Jan. 23 and Jan. 25.
A yes vote is favored according to odds offered by Paddy Power Plc, Ireland’s largest bookmaker. A yes vote is 4-6, meaning a 6-euro stake would return a 4-euro profit, while a no vote is 11-10 which would mean an 11-euro profit on a 10-euro wager. The euro strengthened to $1.3470 today.
The compact agreed to by 25 of the EU’s 27 members requires nations to virtually eliminate structural deficits, creates an “automatic correction mechanism” and enshrines the new measures in national law.
The treaty also provides for tighter control of tax and spending by governments that overstep the bloc’s deficit limit of 3 percent of gross domestic product.
“I suspect it will turn into a very difficult campaign,” said Conall Mac Coille, chief economist at Dublin-based securities firm Davy. “There is a danger it turns into a referendum on many other things and not the treaty itself.”
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