In Ireland, EU treaty on debt remains in doubt

If Ireland rejects a recent EU treaty in a national referendum, it could undermine the fiscal compact Europe is hoping will bring the debt crisis under control. 

For most of the European Union, the fiscal treaty approved earlier this year is a done deal. In Ireland, however, where the Constitution requires a national referendum on any legally binding document, approval is far from certain. 

Much of the uncertainty rests on whether the referendum is actually required in this case. Ireland's attorney general will not make a ruling on that question until late February, but opposition parties left and right are demanding one regardless of the decision.

Both the Irish government and EU officials are keen to avoid a referendum, which, if it failed to pass, could damage the fiscal compact that Europe is hoping will help get the Continent's finances under control.

The EU treaty stipulates that member states must commit to structural fiscal deficits not exceeding 0.5 percent of GDP, and lower and then maintain debt-to-GDP ratios of at most 60 percent. Countries that run an excessive deficit will be subject to structural reform defined and overseen by the EU. Twenty-five of the 27 EU state states have agreed, with only the United Kingdom and Czech Republic refusing.

If Ireland rejects the treaty, the country would be excluded from the Economic Stability Mechanism (ESM), the EU's permanent bailout mechanism designed to take the place of the temporary fund created to disburse loans to the EU's struggling economies. The government also claims the country's membership in the euro currency is at risk. Finance Minister Michael Noonan told Bloomberg in December, "It really comes down on this occasion to a very simple issue: do you want to continue in the euro or not?" 

Rejection is a real possibility. The Irish electorate has twice voted down previous EU agreements, only later endorsing them when the referendums were re-run with the promise of job creation and threat of political isolation in Europe. This time, anger over tax hikes, unemployment, and cuts to the public workforce are riding high and lawmakers fear many will take the opportunity to give them a bloody nose. 

Irish prime minister Enda Kenny maintains his government "has absolutely no fear of a referendum" and would win it if one had to be called — but the political temperature is rising. 

On Feb. 1, the Irish Times reported an unnamed EU official saying, "We drafted the text for the treaty so that he [Prime Minister Kenny] has a chance to avoid a referendum."

Minister of Transport Leo Varadkar said on Jan. 29 that he was not "a fan" of referendums, causing a stir with his strong denunciation. Speaking following an opinion poll that said 72 percent of Irish people wanted to see a referendum, Mr. Varadkar said, "I don’t think referendums are very democratic." Thirty-six percent of those polled said they would definitely reject the treaty, while 40 percent said they would support it and 24 percent were undecided.

Micheál Martin, leader of Fianna Fáil, which was in power when Ireland negotiated its bailout from the so-called "troika" of the IMF, EU, and European Central Bank (ECB) in November 2010, has come out in favor of a plebiscite. Speaking in parliament, Mr. Martin said it was "morally right to consult with the people" on the treaty.

Center-right Fianna Fáíl is joined in its calls for a popular vote by left-wing parties Sinn Féin and United Left Alliance, as well as independent lawmakers of various political stripes. Sinn Féin leader Gerry Adams described the treaty as an "anti-growth and anti-jobs […] straightjacket for the country." 

“Irish citizens must have their say on a treaty with such far-reaching implications for this country. Irrespective of what advice the government gets from the attorney general, a referendum is now a democratic imperative," he said.

But Gavin Barrett, a senior law lecturer at University College Dublin, says the referendum is unnecessary. While a referendum would make sense in the case of substantive changes, the EU treaty in question doesn't merit a vote because it merely reaffirms regulations already in place in European law, he says.

"I think there has been some confusion on the part of Fianna Fáil. It is possible to argue the substance is so important you should have a referendum. Their view of the importance of this particular document is, in my view, mistaken," he says.

Beyond the question of whether a referendum is required is uncertainty about the content of the treaty, which many Irish see as a further hurdle to economic growth. Paul Murphy, a United Left Alliance member of the European parliament for Dublin whose group has an attorney looking into the referendum, says the treaty will do nothing to help the economy grow.

"The massive irony here is the government giving out [complaining] about a referendum, but there has been no discussion of the content of the document," he says.

Ireland's trouble lingers

In the background is Ireland's sickly economic performance. Despite being considered the poster boy for peaceably implementing the EU's austere fiscal reform policies, Ireland's troubles linger. Unemployment is at 14.2 percent, according to the latest figures, while the troika and Central Bank of Ireland both revised their forecasts for the country's growth forecasts downward.

On Friday, the Irish Central Bank said GDP would grow by just 0.5 percent in 2012 and by 2.1 percent in 2013. It also says gross national product (GNP), which excludes profits from multinational companies operating in Ireland, will fall by 0.7 percent in 2012 and rise by 1 percent the following year.

Michael Taft, economist with the think tank Tasc in Dublin, says the measures could inflame Europe's woes, not calm them.

"I wouldn't mind the debt-to-GDP ratio, but the real kicker is if we don't sign up by March 2013, we could be denied access to future funds from the ESM [European Stability Mechanism]. That would precipitate a state default followed by a bank default and I don't think the EU could sufficiently 'firewall' the rest of the eurozone from that," he says.

He also says structural deficit is a measurement that makes no sense to enshrine in legislation.

"You can't see a structural deficit. It's one of those measures that are highly, highly dependent on methodology."