We thought there was a solid tradition in Ireland: first referendum is a No, the second is a Yes. It seemed so simple. But the Irish government has gone and smashed that venerable tradition by saying, if the people vote No, it won’t be putting this issue to a referendum again… incontrovertibly.
Worrying.
The vote in question is about whether Ireland should endorse the so-called “fiscal pact” by ratifying the Treaty on Stability, Coordination and all the rest, which would require an addition to the country’s constitution and thus demands a referendum.
FT Alphaville isn’t in the habit of endorsing a position but we’d like to run through the potential outcomes – particularly as voting has already begun on islands off the northwest coast and some 200 people on Clare Island, Inishbiggle and Inishturk, all off Mayo, will go to the polls on Tuesday.
(And unfortunately, we found only one referendum video worth endorsing so far - h/t to Lorcan Roche Kelly)
The main vote will be on Thursday with the result due on the June 1. Without getting too far into the politics of this, the major issue is that a No vote would almost certainly cut Ireland off from European Stability Mechanism funding.
The ESM is set to replace current facilities as the go-to-spot for eurozone countries in difficulty and the idea is that if Ireland gets into more trouble, it will be able to tap the ESM – but only if it has ratified the Treaty on Stability, Coordination and all the rest:
STRESSING the importance of the Treaty establishing the European Stability Mechanism as an element of the global strategy to strengthen the economic and monetary union and POINTING OUT that the granting of financial assistance in the framework of new programmes under the European Stability Mechanism will be conditional, as of 1 March 2013, on the ratification of this Treaty by the Contracting Party concerned and, as soon as the transposition period referred to in Article 3(2) of this Treaty has expired, on compliance with the requirements of that Article
There is some disagreement about whether Ireland would, in fact, be cut off from funding in the case of a No vote (directly tapping the IMF has been mentioned as an alternative if it was) but that is the technical position.
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It is also worth remembering that for all Ireland would be able to borrow from the ESM, it will also have to pay into it. There are also wider arguments about the impact of austerity and the near-uniform budgetary rules this treaty will attempt to enshrine.
David McWilliams has an op-ed in Tuesday’s FT while an Irish Times op-ed by John O’Brennan highlighted the potential changes to the politics of the EU, for example.
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From Morgan Stanley (with our emphasis):
The referendum is important for Ireland because, should the nation need a second bail-out from the ESM, it would need to ratify the Stability Treaty within 18 months of it coming into force. Ireland’s current rescue package is projected to last until 2013. Potential access to the ESM funds in future would likely be reassuring to investors, thus making a return to the bondmarket in the remainder of this year easier. At the European level, an Irish vote of ‘No’ would be of limited impact, we think. This is because the Stability Treaty can come into force as soon as it is ratified by at least 12-euro area countries. Hence, an Irish ‘No’ vote would not meaningfully hold up the treaty coming into force…
In case of a ‘No’ vote, a second referendum could be conducted next year. The government however has stressed that in the case of a ‘No’ vote, it is not going to put the issue in front of the electorate again. In the light of the discussions in Europe, it also would seem difficult, we think, to grant Ireland concessions or opt-outs from the Stability Treaty.
The full MS note, which a takes a longer look at Ireland, is in the usual place.
The problem is that although recent polls suggest Ireland is leaning towards a Yes vote (see chart below) and supposed market-happiness, the polls vary widely and might tend to exaggerate any Yes position due to the large chunk of undecideds still out there who have a tendency to eventually head into the No camp:
From an Oierachtas research piece:
The aggregate pattern appears to be that as “Don’t knows” decline, ‘No’ voting increases. Those who initially “don’t’ know” can be seen to vote no in many referendums elsewhere. They vote no for good theoretical reasons, i.e. they are uncertain how a yes vote might change a situation they are not unhappy with (e.g. Bowler and Donovan, 1998).
Although the Irish Times’ most recent poll suggests that trend might not be holding true…
Support for the Yes side has increased by nine points since the last Irish Times poll five weeks ago, while support for the No side has gone up by seven points. The number of undecided voters has come down by 17 points since the last poll.
… the important point is that any market expectations of a foregone conclusion are well wide of the mark.
Related links:
What We Talk About When We Talk About the Fiscal Treaty – The Irish Economy
Will a Yes Vote Cost €6bn? – Economic Incentives