Ireland becomes a test for E.U. crisis remedy

February 28, 2012

The Irish government on Tuesday declared it would hold a referendum on Europe’s freshly inked fiscal treaty, setting up a vote that could indicate whether the island nation is willing to accept years of tough austerity to remain within the euro zone.

The decision will amount to the first public test of a new accord that would seek to enforce budget discipline throughout the region, setting strict limits on state spending to restore investor confidence in the bloc’s indebted countries. Last month, 25 of the European Union’s 27 nations — all but Britain and the Czech Republic — agreed to the German-led treaty, with the nations involved now in the process of trying to ratify it.

Yet opinion polls across Europe suggest a deepening suspicion of E.U. institutions, with surveys in Ireland particularly suggesting a wide gap between the public and its leaders over the wisdom of granting more power to authorities in Brussels.

While the new treaty appears to enjoy more support in countries such as Germany — where famously frugal taxpayers have been heavily tapped to bail out Greece, Ireland and Portugal — in Dublin and elsewhere, opponents say they see their sovereignty at stake.

“I don’t think the Irish feel we have any sovereignty left anymore,” Shay Moran, a 41-year-old unemployed semiconductor engineer and treaty opponent, said recently at Dublin’s Gravediggers pub, where Irish revolutionaries once plotted against British rule. “All I see is [German Chancellor Angela] Merkel wielding a big stick and telling us what to do.”

The move by the Irish to put the question before voters who have a history of rejecting European accords could not alone scuttle the new treaty.

Although 25 nations have agreed to the new accord, only 12 of the 17 nations that share the euro must ratify it for the treaty to come into effect. So far, only Ireland has declared that it will hold a public vote.

Yet Ireland’s announcement comes as doubts are swirling about the treaty’s backing in France, the region’s second-largest economy and without whose support many would see the treaty as effectively dead.

In Paris, the Socialist front-runner in the upcoming presidential election, Francois Hollande, has indicated that if he were elected in May, he would renegotiate the treaty to include measures oriented toward promoting growth in European economies — something the Germans continue to strongly oppose. The Irish referendum, analysts said, amounts to a further complication to a treaty meant to prevent another European debt crisis and that was used to persuade German politicians this week to support a costly second bailout for near-bankrupt Greece.

More important, a rejection of the treaty by the Irish people would put any future bailouts in jeopardy. Under a 2010 deal, Ireland is scheduled to receive rescue funds through next year. But analysts say that, like Greece, Dublin may require another rescue package — one it could effectively be barred from getting if the treaty is voted down. Ireland’s prime minister, Enda Kenny, who strongly backs the treaty, described the referendum on Tuesday as an “opportunity to reaffirm Ireland’s commitment to membership of the euro.”

“The Irish people can confirm our commitment to responsible budgeting and ensure that the reckless economic mismanagement that drove our country to the brink of bankruptcy will not be repeated,” he said, laying the blame on the previous government.

Polls: Vote too close to call

European and Irish government officials had desperately hoped to avoid a referendum.

Irish voters have twice rejected key E.U. treaties — in 2001 and 2008 — although both accords were ultimately approved in second referendums after Dublin won a number of concessions. Recent Irish opinion polls have shown that a vote on the new European fiscal pact would be too close to call.

But a ruling by the Irish attorney general indicated that under the national constitution, Ireland could not ratify the accord without a referendum. Although a date has not been announced, the vote is expected to take place by June.

The campaign to pass the treaty in Ireland, experts say, is likely to be aided by the growing realization in European capitals that the accord amounts to a paper tiger, with any harsh penalties for violators coming only after a laborious, bureaucratic process.

But in Ireland, the referendum on the treaty is also likely to be seen as a proxy vote on the tough austerity imposed on Ireland by its lenders at the European Union, the International Monetary Fund and the European Central Bank as part of a three-year bailout deal struck in 2010.

Always different from the one in Greece, the Irish crisis was sparked not by runaway government spending and faked economic figures, but by a U.S.-style property bubble that led to the near-collapse of the banking system. In sharp contrast to the Greeks, since being bailed out, Ireland has been portrayed by its lenders as a model, with the Irish so far succeeding in cutting the deficit, improving competitiveness and restoring their country to growth.

Demands ‘just aren’t fair’

But many in Ireland say the recovery here looks better on paper than it does in real life, raising fresh doubts about the country’s ability to regain market confidence by the time its $112 billion bailout runs out next year. Some economists are suggesting that, like Greece, Ireland may be forced into a second massive bailout despite its recent gains.

E.U. estimates suggest that Ireland’s economy grew by almost 1 percent in 2011. But that figure is pumped up by profits from multinationals such as eBay, Facebook and Google that use Ireland for its low corporate tax rates and tend to repatriate a good portion of those profits while employing only 7 percent of the Irish workforce.

After stripping those numbers out, the Irish economy appears to have actually suffered a mild recession last year. Consumer spending, retail sales and bank credit have dried up with few signs of recovery. The Irish unemployment rate remains near modern highs, above 14 percent.

Few in Ireland are seriously debating the need to reduce spending and close the budget gap. But opponents of strict austerity insist that a focus on deep and quick cuts, mixed with markedly higher sales and new property taxes, has hampered the nation’s return to robust growth. That, many here argue, would only continue for years if Ireland agrees to the new European treaty.

For some, such as Cian Dowling, 20, a bright-eyed engineering major at University College Dublin, it has meant rethinking a commitment to education. New cuts to university subsidies mean that he will now have to pay $8,000 or more a year out of pocket for a master’s degree in a country with no U.S.-style student loan programs. Like tens of thousands of young Irish escaping dwindling domestic opportunity, he is considering a life overseas, possibly in New Zealand.

“What they’re really doing is telling young people like me that we can’t get higher educations anymore,” he said. “But wasn’t a lack of education Ireland’s problem in the past?”

He continued: “I feel like these demands from Europe for cuts just aren’t fair. Isn’t it better to try to help us get back on our feet rather than knocking us down again?”

Special correspondent Brendan Howard in Dublin contributed to this report.

Anthony Faiola is The Post's Berlin bureau chief. Faiola joined the Post in 1994, since then reporting for the paper from six continents and serving as bureau chief in Tokyo, Buenos Aires, New York and London.
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