What a Referendum in Ireland Means for the Rest of the E.U.

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ETER MUHLY / AFP / Getty Images

Irish Prime Minister Enda Kenny speaks to supporters of the European fiscal-treaty referendum in Dublin on May 29, 2012

Irish Prime Minister Enda Kenny knows it’s good to look voters in the eyes. When that’s not possible, a nationally televised speech works just as well. On May 27, Kenny took to the airwaves and appealed to the debt-ridden nation to approve a referendum on the E.U. fiscal treaty. Drawn up in response to the euro-zone crisis, the treaty obliges member states to balance their budgets or face automatic sanctions. Only countries that ratify the fiscal pact will have access to the European Stability Mechanism (ESM) — the E.U.’s permanent bailout fund that amounts to more than $1 trillion. If you want protection, you need to join the club.

“A strong yes vote will create the certainty and stability that our country needs to continue on the road to economic recovery,” he said in his four-minute address. “This treaty will not solve all of our problems, but it is one part of the solution.”

(MORE: The Euro’s Latest Drama: Fickle Ireland Sets Vote on Fiscal Treaty)

Ireland is the only country conducting a plebiscite over the treaty. Proponents across Europe will be watching closely when voters head to the polls on Thursday. That’s because Irish voters have a habit of going against the grain when it comes to fundamental E.U. treaties. They initially rejected both the Nice and Lisbon accords, only to ratify them later during a second vote. Aware of the fickle Irish voter, the suits behind the treaty designed it so that only 12 of the 17 euro-zone countries need to ratify it to make it law in those states.

The global downturn hit Ireland hard. Its GDP fell for three consecutive years from 2008 to ’10. House prices dropped 17% in 2011, and the European debt crisis forced Dublin to implement more than $40 million in austerity measures to reduce its deficit. Seizing on that, Gerry Adams, leader of Sinn Fein, called on the country’s 450,000 unemployed to reject the treaty. “It is a good and patriotic and positive action to say no to a treaty that is bad for you, bad for your family and community, bad for society and entirely without any social or economic merit,” he said in a televised speech at his party conference on May 26.

But Ireland did see tepid growth in 2011, owing in part to its export of pharmaceuticals and IT services, which aren’t as sensitive to recession. Kenny worries that rejecting the referendum will undermine international confidence — slowing the country’s growth before it has time to catch fire. It’s a reasoned argument. Around three-fourths of Ireland’s trade involves goods and services produced by foreign-backed companies that have set up shop inside the country. Of the 950 high-tech multinationals with Irish operations, around 600 are U.S. firms. “In my recent visits to the U.S., in China and elsewhere, the consistent message from both political and business leaders is that they want to see certainty about Ireland’s place in the euro zone,” he said. “A yes vote will provide that certainty and will confirm to investors that Ireland is a reliable place, with stable conditions.”

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Just in case reasoning doesn’t convince voters, Kenny also dabbled in scaremongering. On Monday, people living on the Irish islands off the shore of counties Donegal, Mayo and Galway headed to the polls early; officials allowed residents to vote ahead of Thursday’s referendum given the frequency of bad weather, which can delay the return of votes from polling stations to counting centers. As they cast their votes, Kenny told reporters that ratings agencies will likely downgrade the country’s sovereign debt if voters reject the fiscal pact. Bond prices reflect the fear of an Irish ‘no’ vote. On May 30, for the first time since January, two-year Irish borrowing costs rose above 10-year bond yields. That suggests investors are worried about Ireland’s ability to repay bonds in the near-future.

Foreign leaders haven’t inveighed against an Irish no vote. But the fact that Dublin is conducting a referendum certainly hasn’t won it any friends. In February, the announcement that it would take the issue to the polls sparked an immediate fall in the euro against the dollar. And Michael Meister, the budget and finance spokesman for Angela Merkel’s Christian Democratic Union, sounded like a teenager with a bad attitude when he found out Ireland might not want to join the E.U.’s fiscal pact. “Whoever doesn’t accept the treaty has no protection from the ESM bailout fund,” he said. “If the Irish people think they don’t need any ESM protection they can, of course, reject the fiscal treaty.”

But doing so has consequences far beyond undermining international confidence in Ireland. Spanish Prime Minister Mariano Rajoy has already begged euro-zone leaders to direct money from the ESM directly to Spanish banks. Were Ireland to vote yes, it could make the case that it too is entitled to any concessions offered to Madrid. A no vote could also transform the former Celtic tiger into Europe’s scapegoat. As John Bruton, the country’s former Prime Minister, wrote in the Irish Times, Ireland could “be blamed for things for which it would not be responsible, including influencing, by unwise example, an antibailout election result in Greece and thus also be blamed for endangering the euro as a whole.”

One poll suggests that 49% of voters will support the pact for stricter budget discipline, while 35% will reject it. But the nays could still have it: 16% of voters remain undecided. Excluding the undecided, though, the referendum is poised to win by a margin of 58% to 42%. Doing that math is easy. Balancing Ireland’s budget — even with stricter controls — should prove a bit more taxing on everyone.

MORE: The Race to Win the Soul of Ireland

Adams is a staff writer at the London bureau of TIME. Find him on Twitter at @willyleeadams or on Facebook. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

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