Irish opponents of Europe’s fiscal treaty are drawing inspiration from Athens and Paris as voters across Europe rebel against austerity.
The Irish hold a referendum on the treaty on May 31, after Greek and French voters rejected candidates promoting budget cuts to help solve the euro-region debt crisis. While opinion polls show the “yes” side ahead, that was also the case before previous unsuccessful plebiscites in Ireland.
The French and Greek elections “allow the treaty’s opponents to argue the tide is going out on austerity,” said Eoin Fahy, an economist at Kleinwort Benson Investors in Dublin. “The results are damaging for the ‘yes’ camp. Just how damaging remains to be seen.”
A “no” vote by Ireland, which has pushed through every measure asked of it since its 2010 rescue, would deal a further blow to a German-led bloc in Europe that says budget cuts are essential to tackle the root cause of the 2 1/2-year crisis. In France, Francois Hollande became the first Socialist to win the presidency in 17 years as he defeated Nicolas Sarkozy on May 6. In Greece, Syriza, which has vowed to renegotiate the terms of international aid, is trying to form a government.
“The people of France, the people of Greece are against the policies of austerity and it is now a moment for Ireland to add our voice to that,” Mary Lou McDonald, deputy leader of Sinn Fein, the largest party opposing the treaty, told reporters in Dublin on May 7 in comments aired by national broadcaster RTE. “The best way we can do that is by delivering a resounding ‘no’ vote.”
Ireland must hold a referendum should a treaty alter the country’s constitution. Irish voters rejected changes to the European treaty in 2001 and 2008, before the proposals were passed in reruns. The yield on Ireland’s October 2020 bonds, regarded as the benchmark, fell 2 basis points today to 6.87 percent while Greek and French borrowing costs rose.
Syriza, a coalition of left-leaning Greek parties, came in second in the May 6 election as New Democracy and the socialist Pasok party, which support the bailout plan, fell two seats short of the 151 seats needed for a majority. Syriza was handed the mandate yesterday to form a government after New Democracy’s Antonis Samaras failed to forged a coalition agreement.
Hollande is preparing to take office after his anti-austerity campaign helped him unseat a sitting French president for the first time in more than 30 years. Hollande has vowed to reopen the fiscal treaty, complicating the Irish government’s push to win support for the accord.
The developments “provide the ‘no’ side with the ammunition to highlight increased opposition to austerity in Europe,” fixed-income firm Glas Securities said in a note.
To be sure, polls indicate the “yes” side leads in Ireland. The most recent opinion poll conducted by market research firm Red C shows that 47 percent of voters back the treaty, while 35 percent oppose it. Eighteen percent of the electorate were undecided in a survey carried out between April 23 and April 25 for the Dublin-based Sunday Business Post.
“My view is that it’s going to pass, but it’s going to be tight -- and much tighter than the polls indicate at the moment,” said Dermot O’Leary, an economist at Goodbody Stockbrokers. “It needs to be clarified quickly what Hollande wants to do, as uncertainty may favor the ‘no’ side.”
The Irish government is struggling to turn Hollande’s victory in its favor, with Deputy Prime Minister Eamon Gilmore traveling to Paris last weekend to witness the first Socialist victory in a French presidential race since Francois Mitterrand.
Irish Prime Minister Enda Kenny said he welcomed the French president-elect’s focus on growth, after Ireland’s economy shrank about 15 percent since 2007. In parliament today, he said Hollande has no intention of interfering in Ireland’s referendum campaign and that he “fully respects” the Irish situation.
“Hollande doesn’t want to rewrite the whole treaty, he just seems to want to add an annex on growth,” Fahy said. “So the government can argue that their opponents’ arguments are nonsense, but it’s not clear that will gain traction, as people focus on the austerity measures in the treaty.”
The fiscal compact requires nations to virtually eliminate structural deficits, creates an “automatic correction mechanism” and enshrines the new measures in national law.
Ireland’s government has already introduced 24 billion euros ($31 billion) of budget cuts since the economy went into a recession in 2008, and there are signs that voters are growing weary of austerity. Satisfaction with Kenny’s government has dropped 14 percentage points to 23 percent in the past six months, according to an Irish Times poll published on April 20.
“We have a unique opportunity to deal another strong blow to the austerity agenda that works only for the bondholders and rich,” said Paul Murphy, a socialist member of the European Parliament who is campaigning against the treaty. “We can add to the momentum against this treaty and potentially sink it.”