Friday, March 02, 2012

Ireland to Hold Vote on European Fiscal Pact

FT: Ireland Calls Vote on European Fiscal Pact
Guardian: Ireland Set for Referendum on Eurozone Fiscal Treaty
Spiegel: A Decisive Moment for Ireland
WSJ: Ireland to Hold Referendum on EU Treaty

On Tuesday February 28, Ireland’s Prime Minister Enda Kenny announced that the country would hold a referendum on the recently-agreed-to European Fiscal Pact. The Pact sets tough deficit limits as well as strict enforcement mechanisms to prevent Eurozone countries from accumulating large amounts of debt. Under the Pact, member countries’ deficits must not exceed 0.5% of the country’s gross domestic product (GDP), debt must be below 60% of GDP, and countries must add balanced-budget rules to their constitutions. Within the next three months, at least twelve Eurozone countries must ratify the Pact for it to come into effect, but not all countries must follow Ireland’s lead and hold a referendum.

Under the Irish constitution, a public vote is necessary to ratify any significant transfer of decision-making power to the European Union (EU). However, Ireland’s past experiences have shown a suspicion towards further European integration. The Irish people have twice rejected EU treaties (in 2001 and 2008), only to approve them in second referendums after certain concessions in the treaties were made to appease Ireland’s voters. Thus, European leaders are concerned that the referendum will not pass. If Irish voters reject the Pact, the most immediate result would be that the Irish government would lose access to financial assistance from the European Stability Mechanism (ESM)—the Eurozone’s bailout fund, according to a provision of the Pact. Further, if Irish citizens vote “no” it could lead to uncertainty in financial markets as investors lose confidence in Ireland and the Eurozone’s ability to create more binding and enforceable fiscal rules.

Nonetheless, Prime Minister Kenny is optimistic that the Irish people will reaffirm their commitment to the Eurozone. There is a general consensus among economists and observers that Ireland still needs external assistance from the “Troika” (a group comprised of the European Commission, the European Central Bank and the International Monetary Fund in charge of monitoring the economic situation in distressed countries) and the ESM for its economic recovery. Thus, the referendum will show whether the Irish people are willing to cede additional decision-making powers to the EU or, as in the past, certain concessions in the Pact will need to be made to win their support.

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