Ireland voted Yes for the fiscal treaty. How was the result greeted in Brussels?With considerable relief. As Spain teeters and Greeks flirt with anti-bailout leaders in the looming election, a No vote would have added to the growing pile of problems facing Europe. Despite the unambiguous Irish result, the euro zone at large remains under exceptional pressure.
In practical terms, what does the outcome mean for Ireland?
The vote should make it a little easier for Ireland to make its return to private bond investors at the end of the EU-International Monetary Fund rescue programme. While the Government has rigorously executed the deal, European and Irish officials were convinced that a No vote would have shut Ireland off from financial markets. The danger remains, however, that the worsening situation in Spain and the possibility of Greece returning to the drachma could sweep the effort off course.
What can Ireland do to avoid that?
Only two days ago, the European Commission said Ireland should stick to existing agreements to minimise the risk. In the event of contagion breaking out in markets following a chaotic Greek default or a catastrophic bank run in Spain, the reality is that it would be down to the EU authorities to assert control over the situation.
What does the outcome mean for Taoiseach Enda Kenny?
Arguably, this will strengthen his hand in his engagements with other EU leaders. For example, German chancellor Angela Merkel is known to have been impressed when the Irish people changed the Constitution to cut judges’ pay. The fiscal treaty has been quite a different proposition, coming amid widespread disdain at relentless fiscal retrenchment and the huge taxpayer-funded bank bailout. This gives Kenny kudos in the summit chamber.
Ah, the dreaded banks. What of the Government’s campaign for debt relief?
The firm view in Dublin is that a Yes vote will make it easier to prise a concession from Ireland’s euro zone partners. In the early phase of the referendum campaign, Minister for Social Protection Joan Burton said Ireland needed a result to ensure the treaty was passed. The counter-argument in Government circles was it was better to secure a Yes vote first before pressing home the argument.
But Europe has shown little willingness to go down this road . . .
That is true. Minister for Finance Michael Noonan says the troika is on board to review the Anglo Irish Bank promissory notes, but that depends on unanimous support from the euro zone countries. The Germans haven’t changed their minds yet, their argument being that any climbdown would send an undue signal of distress about a bailout programme which is perceived to be on track.
What of all this talk about the permanent bailout fund – the European Stability Mechanism – directly rescuing banks?
After all, we have now voted to ensure access to the ESM if needed. This debate flows from concern that the Spanish bank rescue could overwhelm the Spanish state and anxiety that a full-blown EU-IMF programme could overwhelm the ESM or its predecessor, the European Financial Stability Facility. The basic idea is that capital would go directly to banks, with the money not being added to national debt.
Sounds appealing. Is it feasible? The ESM is not allowed to act in this way.
However, article 19 of the ESM treaty gives its governors – representatives of the euro zone countries – the power to “review the list of financial assistance instruments” it deploys “and decide to make changes to it”.
Again, unanimity is required. Again too, there is little sign that creditor countries such as Germany are willing to change the fund’s basic mandate.
Is that the end of it?
No. The thinking right now is that the risk of a euro zone catastrophe is so great that radical emergency solutions may yet be required. In addition to new ESM powers, there is increasing talk of a pan-European guarantee on bank deposits.
Sum this all up.
The voters have played a pragmatic, safe hand. The hope must be that Europe adopts a similar approach to safeguard Ireland’s recovery, which is still not assured.
