EU to Ireland: your referendum won't stop EU financial treaty

Germany is angry that Ireland plans to hold a referendum on a treaty that will impose strict budget controls on EU members. Ireland has twice rejected EU treaties — but this time, it alone cannot scupper the deal.

Despite German anger at Ireland's decision to hold a referendum on the European Union financial treaty, Europe will go ahead – with or without Ireland.

Dublin's snap decision to hold a referendum on the eurozone "fiscal compact" will have no impact on the plans, regardless of the outcome, politicians have insisted.

Yesterday's decision to greenlight a public referendum was taken on advice from Ireland's top legal official, attorney general Máire Whelan, who said that "on balance" a public vote was demanded by the Constitution.

Many in Ireland's governing coalition, nervous about the possibility of a rejection, sought to avoid a referendum – with some support from the EU. Prime Minster Enda Kenny said passing the treaty was in Ireland's national interest and that he was "very confident" of a yes vote. 

The compact imposes stringent budget controls on eurozone members, requiring that structural deficits not exceed 0.5 percent of GDP and that debt-to-GDP ratios be lowered to 60 percent and be kept at or below that level. Countries that run up excessive deficits will be subject to direct EU intervention in their economic policies and action can be taken against them in the European Court of Justice.

German news media today thundered about Ireland's decision.

Der Spiegel complained "the new architecture of the euro is threatened by a birth defect," while the Süddeutsch Zeitung warned "the outcome will have a much greater impact on Ireland than it will on the euro community."

Gerry Feehily, English-language editor at Paris-based PressEurop - himself Irish - says the German press's response mirrors wider fears across Europe, including in France, where an election is due in April.

"French president Nicolas Sarkozy for one would prefer this hadn't happened as he faces into a presidential election campaign," he says.

Mr. Feehily says the shockwaves sent out by the Irish decision are unrelated to whether or not Ireland itself plays ball. "It sets a precedent that austerity policies have to be put before the people, not just in Ireland," he says.

History of rejection

Ireland has twice previously rejected EU treaties — but this time is different as Irish rejection alone cannot scupper the deal.

In December 2011, Britain vetoed a full-fledged EU treaty, resulting in the creation of the intergovernmental "fiscal compact" that will be signed into law once it is ratified by 12 of the 17 eurozone members. A traditional EU treaty requires unanimous ratification by all 27 EU member states.

Should Ireland - or any other country - fail to ratify the compact, it will be excluded from any future funding from the European Stability Mechanism, the new permanent EU bailout fund. The Irish Times today reported that Michael Meister, budget and finance spokesman for Germany's ruling Christian Democratic Union said: "Whoever doesn't accept the treaty has no protection from the ESM bailout fund."

Opportunity to demand concessions

The uncertainty presents Ireland with the opportunity to demand concessions from the EU on debt repayments in order to ensure that the public approves the treaty, which the EU is desperate to see passed.  

Speaking in parliament yesterday, Prime Minister Kenny sought to put a positive spin on the move, saying the vote would cement Ireland's place in the eurozone.

"It gives the Irish people the opportunity to reaffirm Ireland’s commitment to membership of the euro, which remains a fundamental pillar of our economic and jobs strategy," he said in a speech to parliament. 

The electorate in Ireland has a history of rejecting EU treaties, most recently in 2008, with the Lisbon Treaty on reformed Europe-wide governance. The treaty eventually passed in a repeat referendum, but only after concessions were offered.

The content of the referendum question, expected to be held no sooner than May, has not been announced — and confusion reigns. In December, Irish Finance Minister Michael Noonan said it would come down to whether or not Ireland would stay with the euro currency. 

Economists and lawmakers have called for debt forgiveness in return for agreeing to sign this latest treaty.

Brian Lucey, an economist at Trinity College Dublin, says the Irish economy will continue to struggle as long as it has to pay debts incurred by Anglo Irish Bank. The bank lost billions in property speculation and was subsequently nationalized by Ireland's last government, which issued more than €30 billion ($47.5 billion) worth of promissory notes on the bank's outstanding debts.  

"Economically the promissory notes are a drag on Ireland's regaining fiscal control. If the government wanted to, they could use this [referendum] as a bargaining tool to renegotiate the payment of the Anglo promissory notes," he says.  

Speaking in parliament, independent lawmaker Shane Ross, a former stock broker and journalist, echoed this view, demanding a "quid-pro-quo" debt write-off in return for a "yes" vote. 

Graham Finlay, a lecturer in politics at University College Dublin, says the opportunity for the Irish government to extract concessions on debt repayments is a real one.

"I can see people voting no unless there are concessions. Things would be extremely problematic if we rejected it, losing top-table access, but crushing us would not be in the interests of the EU. It's playing with too much fire," he says.

Opposition parties welcomed the decision to hold the vote. Micheál Martin, leader of the Fianna Fáilparty that governed Ireland until March 2011, said, "I think it's the right decision and one that shouldn't have required legal advice in my view." 

Fianna Fáil will support a yes vote, as will ruling coalition parties Fine Gael and Labour, but socialist lawmakers in Sinn Féin and the United Left Alliance will campaign for a "no" vote. Party deputy leader Éamon Ó Cuív stepped down today in opposition to the party's support for the treaty.

Paul Murphy, a member of the EU parliament for the United Left Alliance representing Dublin, welcomed the referendum but warned a straight question on the EU compact was necessary.  

"Politically, they'll load the question, linking it to membership of the euro [currency] but legally they may not be able to do so. It's the fear card they'll go for, primarily," he says. 

Everything remains up for grabs in the vote: an opinion poll conducted for the Sunday Business Post newspaper in January found that 40 percent of voters would vote yes to the treaty and 36 percent would vote no, with 24 percent undecided.

A eurozone finance meeting scheduled for Friday has been cancelled, with Germany saying it will not increase the amount of bailout funds to eurozone countries. German chancellor Angela Merkel told parliament she "does not see the need at this time for a debate over increasing the capacity" of the EU to deal with countries in economic trouble.