On 31 May, the Irish people will be asked in a referendum to express their opinion on the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, otherwise known as the European Fiscal Compact. The compact, which will enter into force on 1 January 2013, aims to tighten controls on member states’ budgetary decisions.
Ireland, which has twice — 2001 (Nice) and 2008 (Lisbon) — rejected EU treaties, will thus become the only country in the eurozone to give a democratic verdict on the move to tighten member states debt and deficit rules. On the two previous occasions when the electorate rejected EU treaties, both were rerun and eventually passed after the country received concessions, primarily concerning on tax sovereignty and military neutrality.
However, despite their recent history of treaty rejection, this referendum is different. With no prospect of a rerun, Ireland finds itself with much less political leverage than before. An Irish ‘No’ vote would be unlikely to derail the compact because, as it is not, legally speaking, an EU treaty, the agreement cannot be nullified by a single member state. Instead, it requires ‘qualified majority’ ratification by only 12 of the 17 eurozone member states – a majority it has already received. A failed referendum on this occasion would therefore be a major setback for Ireland’s coalition government who believe that a rejection would make their planned 2013 return to the bond markets more difficult. It would also give encouragement to anti-EU populist parties across Europe.
Ireland has been widely praised as a bailout ‘rolemodel’ for the way the country has stuck to its austerity regime. But popular anger remains high. The public feels aggrieved that the bailout funds have mostly been used to recapitalise the country’s failed banks, and not to stimulate growth or create employment. In this context, Taoiseach Enda Kenny was expected to fight for concessions from Brussels on the terms of Ireland’s swingeing bailout programme as the price for heading off a potentially embarrassing electoral rejection of the fiscal compact. However, no such concessions have been forthcoming. With the economy still in recession, unemployment running at record levels and a return to net emigration, there are fears within the Fine Gael-Labour coalition that voters might use this latest referendum to punish the government or as a protest against the austerity entailed by the EU-IMF-ECB troika. The EU was long a beacon of light for Irish people. It now risks becoming an outlet for their anger.
Both governing parties, as well as Fianna Fáil, the main opposition party, are urging a ‘Yes’ vote. The predominantly socialist opposition; eurosceptic Sinn Féin, the United Left Alliance, and a range of Independents, are each calling for the compact to be rejected, arguing that its belt-tightening focus risks worsening Europe’s struggling economy.
Rejecting the compact would technically exclude Dublin from accessing the European Stability Mechanism – a €500bn fund to be introduced in July as permanent successor to the eurozone’s current rescue fund. ‘The politics of fear’ is thus likely to dampen anti-austerity anger. However, there has been much debate throughout Europe about the likelihood of such a ban being adhered to should the need for another bailout actually arise. The awkward status of the compact, outside the EU’s normal architecture, has also confused matters. With the previous government’s promise that ‘a ‘Yes’ to Lisbon would help create jobs’ having proved unfounded, all this ambiguity is likely to play into the hands of Ireland’s anti-fiscal compact opposition.
For the rest of Europe, an Irish ‘No’ vote could be politically explosive, raising fresh doubts about public support for the single currency. It could also strengthen the hand of French socialist François Hollande in his desire to renegotiate the compact (assuming, as is quite likely, that he gets elected president of course). With Sinn Féin now polling in second place and voters unsure what a French socialist victory would mean for Ireland, and for Europe, there is a lot still to play for.
As Taoiseach Enda Kenny sees it, the referendum is an opportunity for voters ‘to reaffirm Ireland’s commitment to membership of the euro’. In December his finance minister Michael Noonan put it more bluntly, describing the vote on the fiscal compact as a vote on Ireland’s membership of the single currency. A recent opinion poll offered the government some encouragement, suggesting the referendum would pass, although by only a small margin and with approximately 18 per cent of voters still undecided. Much will depend on how Irish voters view the referendum — as a backlash against austerity, or, as their government is trying to present it, a referendum on Ireland’s continued euro membership. Only time will tell.
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Seamus Nevin works at Policy Network on social democracy and European economic governance
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