Irish government relieved at EU referendum win

Channels Television  
Updated June 1, 2012

Irish voters backed the European Union’s new fiscal treaty in a referendum on Friday, saving Europe a major headache but leaving the government little time to celebrate as problems across the euro zone continue to weigh at home.

The government had campaigned for voters to back the treaty, arguing that a rejection would hurt Ireland’s chances of attracting the investment it needs to recover and raise serious concerns about the country’s funding prospects.

Dublin’s attention can now return to a months-long campaign to refinance much of its bank debt and Prime Minister Enda Kenny said that debt must form part of the comprehensive solution that was needed to fix Europe’s banking sector.

“The Irish people have sent a powerful message around the world that this is a country that is serious about overcoming its economic challenges,” Kenny told a news conference, adding that a banking resolution across the euro zone would help Ireland emerge from its EU/IMF bailout.

Final results showed only five constituencies out of 43 voted “No” to the German-led plan for stricter budget rules, with 60 percent of the electorate coming out in favour.

Two government sources had told Reuters after the polls closed late on Thursday that the treaty was likely to pass by a margin of more than three to two, citing polling data. Turnout, at 50 percent, was about average for a referendum.

Ireland has been held up by its European partners as the poster child for austerity, implementing an 85-billion euro ($106 billion) EU/IMF bailout to the letter as others, notably Greece, remained the centre of euro zone debt concerns.

Yet Ireland desperately needs Europe’s woes to ease if it is to rack up the kind of export-led growth required to pay down its debt – set to peak at a dangerously high 120 percent of gross domestic product (GDP) next year – and ease unemployment.

Ireland is the only country that will put the fiscal treaty to a referendum. The treaty needs the approval of only 12 of the 17 euro zone countries to be ratified, but an Irish rejection would have undermined one of Europe’s key initiatives just as problems mount in Spain and Greece.

Analysts said the ‘Yes’ vote would give Ireland a better chance of getting back to bond markets as planned next year and hand Europe a rare piece of good news.

“I don’t think there will be much market reaction this morning, simply because it’s in line with expectations that were built up because of the polls,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.

“It is a message of support from Ireland to Europe, I think that’s very simply what it is. Policymakers won’t have long to celebrate because there are wider issues in the euro area that they now must move their attention onto.”

Irish two-year bond yields fell almost 50 basis points to 7.12 percent from a near five-month high in early trading, meaning short-term borrowing costs dropped back below those on longer-term bonds having inverted earlier in the week.


In a sign of the modicum of stability that has returned to Ireland’s economy, data showed on Thursday that deposits held by Ireland’s domestic banks rose to a 14-month high in April.

That was in sharp contrast to Spain where depositors worried about their banks moved money abroad at the fastest rate since records began, recalling the tens of billions of euros that flew out of Ireland ahead of its bailout.

A survey on Friday also showed that growth in Irish manufacturing accelerated in May with the NCB Purchasing Managers’ Index climbing to 51.2 from 50.1 in April to boost employment growth in the sector.

The modest growth meant Ireland remained the only country in the euro zone showing growth in the amount of goods and services companies are purchasing, putting it way of ahead of Germany’s 45.2 and the euro zone average of 45.1.

“I think this (referendum result) now just gives that bit more certainty as to where the economy is heading,” said Fergal O’Brien, chief economist at the Irish Business and Employers Confederation’s (IBEC).

“But it doesn’t in any way paper over the problems we have in the domestic economy, the high unemployment, the lack of growth in many sectors of the economy.”

The referendum debate was squarely framed around a clause in the treaty stating that only those states that sign up can access future European bailout money. The finance minister had warned that a “No” vote would be a “jump into the unknown”.

Ireland hopes to exit its programme at the end of 2013 by re-entering bond markets, but the government has argued that access to Europe’s new bailout fund, the European Stability Mechanism (ESM), is an essential backstop should the mood of uncertainty across Europe scupper its plans.

The “No” camp, which had insisted Europe would not dare cut Ireland off, warned the government that a sharp class divide seen in the polls indicated that it could face more resistance with at least three more years of harsh austerity ahead.

“The problems that were facing people yesterday will be facing people today,” Sinn Fein leader Gerry Adams said.