What Happens if Ireland Votes No?


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Would Ireland be able to secure a second bailout?

The Yes campaign claim that, in the event of a No vote, Ireland would be denied EU funding should she require a second bailout. The No campaign claim that a second bailout could be secured elsewhere, often citing the IMF as a likely source.

However the IMF’s previously endless coffers are drying up. The US Congress recently blocked further US IMF funding and, with Japan still rebuilding after a devastating Earthquake and Europe is in crisis, there are few sources left capable of (or willing to) donate the necessary funds for future EU bailouts.

Secondly, it is incorrect to assume that an IMF bailout would result in less austerity and more economic independence than the Fiscal Compact Treaty. IMF loans demand the implementation of strict fiscal and monetary reforms that take a large amount of economic decision making power away from national governments. Conditions attached to IMF loans regularly include sweeping privatisation programmes (including public services such as education, healthcare and water), labour flexibilisation policies (which have eroded workers rights, lowered wages, made it easier for employers to fire at will and degraded the power of trade unions) and harsh austerity regimes which advocate radical cuts in social spending for the purposes of debt repayment. These conditions are far harsher than anything outlined in the Fiscal Compact and we must remember that it was Ireland’s IMF/troika bailout that spearheaded her austerity regime.

Ireland could borrow the necessary funds from international private banks, that is, if any would be willing to lend the amount required. We have recently entered a new era in which banks no longer view loans to EU countries as secure guarantees and Greece recently demonstrated how democracy can undermine the willingness of a country to pay back her debt if things go particularly awry. Regardless of these obstacles, if Ireland could secure such a loan, the interest rates would certainly be far higher than the current 1% offered by the ECB. This option, therefore, is definitely more costly. It is also riskier as any future rise in interest rates could send Irish debt spiralling out of control.

Whether we vote Yes or No in the upcoming referendum, In the event of Ireland needing a second bailout to service her debt, Europe will get involved. A large amount of Irish debt is owed to European banks. A disorderly default on Ireland’s debt would impact an already shaky European financial sector and this is a situation that Europe, and especially Germany, wants to avoid. As Terrence McDonough – professor of economics at NUI Galway – correctly argued; a second bailout for Ireland would be significantly less expensive than an intervention to re-stabilise the European banking system. In such an eventuality, he suggests; “It is highly unlikely Europe would ignore its self-interest in order to spite the Irish electorate“.

Would Ireland be expelled from the Euro/EU?

In both the Nice and Lisbon Treaty referendums in Ireland one scare tactic that was repeatedly used was the threat that Ireland would be kicked out of the EU. This did not happen then and it will not happen now. The UK was not kicked out after Cameron’s veto and Ireland will not be kicked out if the people vote No. Forcing a country out of the EU would require changing the EU treaties and this would necessitate a unanimous vote of all EU members over which Ireland would have veto power.

Regardless of how many experts and commentators suggest that Greece will leave the Euro the fact of the matter is that the Greek people have no desire to do so and nobody can force them to even if the state defaults on its debt. There is no legal basis to force a country out of the common currency, the only way a country can leave is if it chooses to do so, Ireland included.

Would the Eurozone move ahead without Ireland?

It was easy for the Eurozone to move ahead without the UK after David Cameron adopted an unmoving stance, threatening to oppose the Treaty unless a number of purely self-interested, ‘not open to negotiation’ demands were met. The Eurozone would have liked to have the UK on board and if Cameron had been open to negotiation a negotiation probably would have occurred, however, he was not. It is more difficult, but certainly not impossible, to go ahead without Ireland as she is a member of the common currency. Unlike the Nice and Lisbon treaties which were postponed and renegotiated due to negative results in Irish referendums the Fiscal Compact is not an EU treaty and therefore does not require unanimity. But the Fiscal Compact is a treaty aimed at saving the Euro and restoring confidence in Eurozone economies and going ahead without the involvement of one of the riskier Eurozone countries would defy the purpose of the whole project.

A negative result in the referendum will cause the Irish Government to go to the EU saying ‘we did not manage to secure a Yes vote so what can we do to fix this’? This can not be equated to Cameron announcing an unacceptable ultimatum backed with the threat of veto.

Could a tactical No vote secure concessions?

Éamon Ó Cuív recently broke from Fine Fail party ranks to advocate a tactical No vote in the Treaty referendum. He argued that a tactical No vote from Ireland “would probably prompt a renegotiation of the Fiscal Compact and ESM Treaties to be more favourable towards smaller [EU countries]” and perhaps he is right.

The Irish Government supports the Treaty and, as was the case in previous EU referendums, if it is not passed the first time round they will probably hold a second referendum. In this situation Ireland will not have the same leverage she enjoyed after negative referendum results on previous EU treaties but it may open space for negotiation. If the Eurozone thinks that a small bit of negotiation on the Treaty will secure a Yes vote in a second referendum this may appear more favourable than thundering ahead without Irish involvement.

Some argue that Ireland is not in a position to renegotiate anything but that the referendum date is too early because France’s new Socialist President François Hollande may change the Treaty after we vote on it. Hollande seems pretty adamant that Europe does not merely pay lip service to growth and stimulus (as was the case in the Stability and Growth Pact when the word ‘Growth’ was added because of French demands but no concrete structures were included that would see the growth element realised). Commenting to the press after his first presidential meeting with Merkel, Hollande stated; “I want growth to be not only a word but backed by tangible actions that are made a reality… I want to put growth at the heart of our debate…I said it during my election campaign and I say it again now as president that I want to renegotiate what was has been agreed to include a growth dimension.”

Angela Merkel, while clearly wishing to work together with Hollande and find common ground, has made it clear that the Fiscal Compact Treaty is not open to negotiation. It appears that Hollande’s anti-austerity demands will be met, not by reopening the Fiscal Compact, but by complimenting it with a separate “growth pact”. If France cannot renegotiate the Treaty then Ireland may have to accept that she will not be able to either but, after the recent anti-austerity vote in Greece, a No vote from Ireland would put another major dent in Europe’s austerity driven recovery strategy to date.

In the event of a No vote in the referendum Ireland will not be kicked out of the EU or the common currency and it is highly unlikely that European countries would deny Ireland a second bailout in order to finance debt owed to European banks. If Ireland votes No the Irish government will not deliver unreasonable ultimatums like David Cameron did in December. They will try to resolve the issue. This may mean concessions in advance of a second referendum or it may mean a second referendum with no change to the Treaty whatsoever. If the people vote No a second time and Ireland fully rejects the Treaty but decides at a later date that it is in her best interests to join the Fiscal Compact Article 15 allows her to do so; “The Treaty shall be open to accession by Member States of the European Union other than the Contracting Parties“.

In a previous article I outlined how a number of the Treaty provisions are vague and ill-defined. Based on the content of the Treaty itself I concluded that; “the vague nature of the definitions and procedures laid out in the treaty are clearly intended to prevent a complete loss of budgetary sovereignty, while also allowing for a justifiable opt-out clause should a contracting party need to deviate from the fiscal rule for economic reasons. The effect, however, is that it is very difficult to tell how the measures referred to in the treaty will pan out in reality“. Given that Ireland is permitted, by the provisions of the Treaty itself, to join at a later date then perhaps it would be wise to stand back and see what effect the Treaty has in other countries before deciding if we want to be a part of it or not.

Therefore there is little to lose in voting No. It may not result in concessions but there is the chance that it might and this, perhaps, is a chance worth taking. Only a few months ago it appeared that a No vote in the Irish referendum would isolate her in Europe. This is no longer the case and now a No vote would merely add an Irish voice to the anti-austerity movement that is gaining force across Europe at the local, national, and now even regional level.

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4 Responses

  1. paul g

    May 29, 2012 3:38 pm

    On radio on Monday morning, Leo Varadkar acknowledged that Ireland could continue its current bailout with the esfs as long as it organised this by next june. He seemed to think this was a bad thing, and that it would somehow be preferable to wait to the last minute and secure a deal with the esm, but he did not explain why.

    Surely this is one clearcut path to further funding that ticks all the boxes?

  2. Donagh

    May 29, 2012 4:42 pm

    Yeah, its almost like they want a second bailout through the ESM, even though “Noonan said he would not “speculate” on how much the ESM might charge for loans” and there is no mention of the inevitably harsh conditionality attached. However…

    The ESM has been set up to provide ? nancial
    assistance, subject to strict conditionality, to euro
    area countries experiencing severe ? nancing
    dif? culties. As with the EFSF, this assistance
    will predominantly take the form of loans,
    known as ESM stability support (ESS). ESS will
    be conditional on agreement to and compliance
    with a strict macroeconomic adjustment
    programme. The maturity of the ESS loans will
    depend on the nature of the imbalances and the
    bene? ciary country’s prospects of regaining
    access to financial markets. The interest rate on
    the loans, which may be either fixed or variable,
    will be the sum of the funding cost to the
    ESM and a charge of 200 basis points.
    An additional surcharge of 100 basis points
    will be added for amounts still outstanding after
    three years

    So, given that the government will have three more years in office when they’d be able to use the ESM, it would be politically attractive to them to ‘blame’ the conditionality of the ESM for the austerity and wealth transfer they have planned.

    And there is certainly no mention of the fact that Italy, Spain, Ireland and Portugal are supposed to provide one-third of the ESM fund between them. Now where’s the logic in that?

    Actually its worse. Here’s more on the structure of the ESM:

    But here is the crux: Germany and France, whose sovereign bonds have a triple A rating, would not need to put up actual money to cover any shortfall of paid-in capital. A guarantee would do. But countries with lower ratings, such as Italy, Spain, and, yes, Portugal, Ireland and Greece, would have to pay cash. So we are in a perverse situation. Countries with easy access to capital can provide cheap guarantees, while the weaker countries must put forward cash. In fact, the biggest risk to Italy’s future solvency has nothing to do with its own debt. It is the country’s exposure to the eurozone crisis mechanism.

    And for future reference:

  3. Rita cahull

    September 16, 2012 3:04 am

    Ireland should have voted no, but somehow it got rigged into the yes vote, it’s up on Utube announced on 31st may that event at 10pm before the boxes were opened and counted by Reuters news, to the exact count no that was announced after they opened the boxes the next day on the 1st June, the count matched the same as Reuters news on 31st may that evening, rember the boxes were not opened till the following day, so how did the Reuters know about the correct numbering of the yes and no votes? Yes check it out on Utube, they rigged the vote, they lied about the ESm, they lied and threatened the people into voting a yes or a gun to the head regime, this government constantly used fear factor on TV news and newspapers right through the whole campaign, god knows what they said to people while campaigning on their doorstep, the treaty was a no twice again up on Utube a man later in the evening time had one of the boxes in video with a baseball cap in disguise and the next day the box was replaced back to where they got it , with the votes still in the box, everyone on the second Lisbon treaty in 2009 were given pencils only, like this treaty, pencils only, no t many Garda presents in the voting area, only in some places,