March 6 (Bloomberg) -- When Irish Prime Minister Enda Kenny announced last week that the new fiscal agreement with the European Union would be put to a popular vote, he said it was a chance to reaffirm the nation’s commitment to the euro.
Irish voters may see it differently. After several years of great economic pain, their infatuation with the euro has, let’s say, cooled. They are in no mood for affirmation, and the vote is a chance for them to say, enough is enough.
This week Europe’s financial markets are focused on efforts to get private holders of Greek bonds to accept the terms of the proposed restructuring. If that goes well, attention will turn again to Ireland. The Irish honor the principle that constitutional changes should be put to referendum, and the budget rules just negotiated by EU governments as part of the union’s bailout plans would seem to qualify.
Irish voters face a quandary. They have good reason to shun the agreement -- but if they do, it will be another big setback for them and for the EU’s efforts to revive the European economy.
Ireland’s desire to ground constitutional commitments to Europe in popular consent is admirable. It’s a shame that so few other European countries have taken the same trouble -- and as a result may yet see this economic calamity spiral into a crisis of political legitimacy. In addition, the fiscal rules that Ireland will be voting on happen to be badly designed. Governments are promising to keep so-called structural budget deficits below 0.5 percent of gross domestic product. That target is far too tight and inflexible.
Perhaps, then, Ireland’s voters should just say “No”? If they could send the fiscal agreement back to the drawing board by doing so, that option would be worth considering.
Unfortunately, they can’t. Unlike in previous referendums, where an Irish “yes” was needed for planned EU-wide changes to go ahead, this deal goes forward with or without Ireland’s approval. An Irish “no” would release the country from new and unduly restrictive fiscal targets, but would probably also exclude it from further EU financial support.
That is too high a price, however tempting a protest vote might seem. Ireland has made impressive progress in curbing its public borrowing and restoring its international competitiveness through wage restraint. Market assessments of its economic prospects are improving. It may regain full access to the private capital market before long without further support -- but denying itself that support in advance would make its debts riskier, and would therefore be self-defeating.
There’s another point for the Irish to bear in mind. The severity of the fiscal pact, though in one way cause for concern, could also prove a blessing. If Europe’s economies deteriorate again, the new rules will probably prove unenforceable. It wouldn’t be the first time that binding EU budget commitments proved to be less than binding.
Opinion polls since the referendum was announced suggest that Irish voters in fact understand all this. Despite their new reservations about the euro and its works, the majority is intending to vote “yes.”
Meanwhile, the prospect of a referendum may give the Irish government extra leverage in its continuing negotiations with the EU. Dublin should not be shy about using it. Although the fiscal pact will go ahead regardless, other EU governments would rather keep Ireland on board than risk the further uncertainty that a falling-out would cause. It would be a good thing, for instance, if the EU chose to enlarge the scope for discretion in applying the new budget rules.
When it comes to the vote, though, the calculation is clear. For their own sake, as well as for Europe’s, Irish voters should grit their teeth and approve the fiscal agreement.
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