IRISH REFERENDUM ON EU FISCAL PACT COULD CAUSE COMPLICATIONS (3/5)     Print
By Garret Martin

All but two (the United Kingdom and the Czech Republic) of the twenty seven EU member states signed the new fiscal compact on 2 March. This inter-governmental agreement, aiming to prevent  a recurrence of the serious debt woes that have plagued Europe, will come into effect once it is ratified by 12 of the 17 states of the Eurozone, as most are expected to do via their respective parliaments.

But a possible fly in the ointment exists because Ireland will put the fiscal pact to a national referendum.  Prime Minister Enda Kenny had hoped to avoid a popular vote and proceed with ratification by parliament.  But his attorney general ruled that because the pact is an “inter-governmental agreement” and not an EU Treaty, it is not covered by the section of the Irish Constitution that accepts the validity of full-fledged EU treaty obligations.

Ireland will hold a referendum in May or June, under the shadow of the memory that the Irish electorate has twice rejected EU treaties in the past, most recently the Lisbon Treaty in June 2008, before assenting in a second ballot.  

The fiscal compact will move ahead irrespective of the results of the Irish vote, but a “no” vote would have important economic consequences for Ireland and beyond.  Not only could it jeopardize its membership in the Eurozone but, as reported by the BBC, it would also mean that “Dublin would be prevented from accessing the European Stability Mechanism (ESM)” that is due to come into force this summer and will provide substantial assistance to member states threatened by a debt crisis.

Despite this punishing threat many Irish voters would love the chance to send a message to the government and to the EU regarding the austerity and bank measures that have been adopted in Ireland.

News of the referendum came as an unpleasant surprise for Ireland’s European partners. Irrespective of the results of the Irish vote, it could have detrimental consequences beyond Ireland. It may put pressure on other states to resort to a referendum. In France, which is in the midst of a pivotal presidential election campaign, several candidates are already calling for a vote, and socialist front-runner François Hollande has in the past expressed his reservations about the European fiscal agreement, signed by President Nicholas Sarkozy. Furthermore, according to Gerry Feehily, the editor of PressEurop, the shockwaves sent out by the Irish decision are unrelated to whether or not Ireland itself plays ball. "It sets a precedent that austerity policies have to be put before the people, not just in Ireland.”

The pact, however, is important and the support for it seems to represent a stronger sense of momentum in pursuing  the path  of austerity and bank refinancing as first steps,  setting the stage for a return to at least minimal growth across most of the Eurozone.  Under the pact, Eurozone countries will scrutinize each other’s budgets and the European Court of Justice will decide whether nations stick to the rules and fine them up to 0.1 percent of national GDP if they fail to do so.

In a speech at the signing ceremony, the President of the European Council,  Herman Van Rompuy,  said, “The stronger self-constraint by each and every one of you as regards debts and deficits is important in itself.   It helps prevent a repetition of the sovereign debt crisis. It thus also reinforces trust among member states, which is politically important as well.”

Agreement was welcomed by German Chancellor Angela Merkel, the key leader at the summit.  She is hoping to use the pact as evidence of Europeans’ more disciplined attitude toward debt and thus convince reluctant German parliamentarians to agree to a big increase in the Eurozone’s “financial firewall”—a defense that will rely heavily on German taxpayers.

Garret Martin is Editor-At-Large at “European Affairs”