The announcement of an Irish referendum on the European Stability Treaty put the euro cross-rate into a brief tizz on Tuesday. The reason, as the FT explains:
A no vote would mean Ireland was not eligible for funds from the European Stability Mechanism, the eurozone’s new bail-out fund. The pact can enter force with the support of 12 of the 17 countries that use the euro, effectively removing any single nation’s veto over the accord.
RBS says the referendum’s significance is all in the wording. Specifically, say analysts Nick Matthews and Silvio Peruzzo, whether it refers to adopting the treaty, or actually leaving the monetary union. RBS expects a narrow ‘yes’ vote, either way. And, on parsing Enda Kenny’s statement, they think it will be the more specific and therefore less risky question:
According to our interpretation of the statement, the question will be directly related to the ratification of the treaty. The statement already gives a hint as to how the debate is likely to be structured, with PM Kenny emphasising on a number of occasions that the treaty is about a “credible commitment to responsible budgeting” to protect Ireland in the future.
However, even a question limited to the Treaty has some risks, in the event of a No vote. It wouldn’t affect the support Ireland is currently receiving, because that is financed by a combination of the EFSM and EFSF/IMF and domestic funds. They add:
But the negotiation of any additional support at the end of the existing programme could be seriously compromised which might result in significantly higher cost of funding for the Irish economy. In fact, the negotiating power vis-à-vis other European and International creditors will be significantly undermined by a refusal to ratify the Fiscal Compact.
Hmm.
That wouldn’t throw the whole treaty into doubt, however, because it was cleverly engineered to only need ratification from 12 of the 17 eurozone countries.
Not *too* much to worry about, then…
Related links:
Programme for Ireland – European Commission
Ireland to test voters’ appetite for fiscal union - FT
Europe reaction: How Europe views the decision – Irish Times
Ireland returns to international bond market – FT