Ireland: Euro's stability at risk in referendum

DUBLIN – The Irish government launched its campaign Monday to secure public support for the European Union's fiscal treaty, and warned that rejection could ravage Ireland's financial future and destabilize the euro currency.

Pro-treaty campaigners began erecting posters in central Dublin as the government legally confirmed May 31 as the date for its referendum on the fiscal treaty. The agreement among 25 of the EU's 27 nations is designed to rein in deficits across the continent and underpin confidence in the euro.

Ireland is the only euro member subjecting the treaty to a referendum and cannot ratify it without majority voter support. Government leaders say rejection would deal most damage to Ireland itself but send shockwaves throughout the 17-nation eurozone.

"This treaty is about stability for the euro. Everybody knows how important it is that there is a secure euro," said Eamon Gilmore, Ireland's deputy prime minister and foreign minister, as he unveiled his own Labour Party's referendum posters. They pictured an Irish flag against a blue sky and the slogan "It's about STABILITY — vote YES."

And Prime Minister Enda Kenny said approval of the treaty would "send out a message to the whole world that Ireland is open for business and that we have put the worst of our economic difficulties behind us."

Rejection would mean that Ireland is barred from tapping the EU's rescue fund when the country's current bailout fund runs dry next year. Ireland will either need to resume borrowing normally on bond markets by the end of 2013, or secure a second international rescue deal.

"The reality very clearly is that we will not have access to the European Stability Mechanism, which is the major fund that is established to support the euro, if the treaty is rejected," Gilmore said. "We hope we won't have to have access to it, but if we need it, we won't have access to it."

This time, unwilling to have EU-wide decisions stalled by the Irish, the fiscal treaty's designers specified that its budget-balancing powers will become law in ratified countries once at least 12 members ratify it through their parliaments. Previous treaties required unanimous national backing to become law anywhere.

The treaty requires countries to reduce and keep their annual deficits below 0.5 percent of their economic output or face automatically triggered spending cuts and, potentially, EU financial penalties that will make their deficits even worse. Many recession-hit eurozone members are running deficits far greater than the eurozone's current rule of a maximum 3 percent of national income.

Ireland, which recorded a eurozone-leading 13.1 percent deficit last year and has a target this year of 8.6 percent, has already spent four years cutting spending and raising taxes in the hope of containing its surging national debt.

Anti-treaty campaigners, who have been far more vocal in advance of the referendum campaign launch, are billing the treaty as "the austerity treaty" and say its rejection will force Ireland and its international creditors to ease or reverse cuts.

But Karl Whelan, an economics professor at Trinity College Dublin, said the exact reverse would be true. He said if Ireland was restricted to seeking future loans only from non-EU sources, it would have no choice but to balance its books more ruthlessly and quickly.

"If you're voting no because you don't like austerity ... that is going to lead to more austerity," Whelan said.

The Irish economy turned sharply in reverse in 2008 when a decade-long property boom collapsed and brought Dublin banks to the brink of bankruptcy. Ireland nationalized five banks at a cost expected to exceed €65 billion ($85 billion), an overwhelming bill that forced the country to negotiate a 2010 international bailout.

As part of that loan pact with the EU and International Monetary Fund, Ireland is committed to reduce its deficit to 3 percent by 2016, after which the treaty's tougher 0.5 percent goal would be pursued.

Opinion polls indicate the treaty should win public approval in the May 31 referendum. An Irish newspaper, the Sunday Business Post, published a poll suggesting 47 percent intend to vote yes, 35 percent no, with 18 percent unsure or unlikely to vote. The poll had an error margin of 3 percentage points.

Pro-treaty campaigners find little reassurance in such polls, because Ireland's voters have rejected two European treaties in 2001 and 2008 despite early polls suggesting otherwise. On both occasions the government staged second referendums in 2002 and 2009 and won.