– Irish EU treaty vote threatens chaos (Telegraph, Feb. 28, 2012):
Ireland has shocked Europe with plans for a referendum on the EU’s fiscal treaty, a move that risks an unprecedented fragmentation of the eurozone and a major clash with Germany.
Premier Enda Kenny said Dublin was acting on legal advice from Ireland’s attorney-general that “on balance” the fiscal compact requires a vote under the country’s constitution. “It gives the Irish people the opportunity to reaffirm Ireland’s commitment to membership of the euro,” he told ashen-faced members of the Dail.
All three major parties back the treaty but analysts say there is a high risk of rejection by angry voters in the current fractious mood. The compact gives the EU intrusive powers to police the budgets of debtor states, and has been denounced as feudal bondage by Sinn Fein and Ireland’s vociferous eurosceptics. The Irish voted “No” to both the Nice and Lisbon treaties before being made to vote again. Dublin has ruled out a second vote this time.
The Taoiseach’s announcement sent the euro into sharp dive against the dollar, though it rebounded later. Europe’s leaders thought they had tweaked the wording of the text just enough to avoid an Irish vote.
Ireland cannot stop the process since a quorum of 12 states brings the treaty into force, but it would be politically untenable to create a new eurozone structure that left one member in limbo.
German Chancellor Angela Merkel reacted with fury last November when Greece, which on Tuesday night approved €3.2bn of new budget cuts, unexpectedly called a referendum on the terms of its bail-out. Ireland’s move may also rankle, even if deemed less capricious.
The fiscal compact has totemic significance in Berlin and any sign that the package is fraying may harden opposition in the Bundestag to further EMU rescue measures. Mrs Merkel suffered a serious blow on Monday when she had to rely on opposition votes to pass the Greek loan package due to mounting defections in her own ranks. Her coalition base is in revolt over demands from Brussels and the International Monetary Fund for a boost in the EU rescue machinery (ESM) to €750bn (£635bn), the unspoken condition imposed by the rest of the world for unlocking global aid.
Any decision has been postponed until after this week’s EU summit. The new requests would push the German share of the funding to well over €300bn, breaching a €211bn ceiling set by the Bundestag in September.
Ireland will continue to receive loans under its €67bn package from the EU-ECB-IMF “Troika” even if it votes “No” but would be in serious trouble if it needed a second package later. The fiscal compact forbids to use of the ESM bail-out fund for non-signatories.
While Ireland’s vibrant exports have helped pull the economy out of a death spiral, austerity is still biting deeper. Dublin house prices fell another 4pc in January from a month earlier and are down 57pc from the peak. The money supply is imploding, with real M1 deposits falling at a 9.2pc rate over the past six months.
There was further bad news in Spain, where it emerged that relapse into recession and ballooning deficits in the regions had pushed the budget deficit to 8.5pc for last year, far above the 6pc target.
The new government of Mariano Rajoy has concluded that it would be “suicidal” to try to slash the deficit to 4.4pc this year to meet EU demands, fearing that it would drive unemployment to 6m, or more than 25pc. Budget minister Cristobal Montoro warned that it would require €43bn of fiscal cuts to comply, but his request for easier terms met a stony response from Brussels.
Portugal won Troika approval for the next tranche of money under its €78bn loan package, despite the risk of slippage as recession deepens. “We will not ask for more time or money. There will be no such signal coming from this government,” said finance minister Vitor Gaspar.
Mr Gaspar defended his orthodox policies from a chorus of critics who say that draconian fiscal cuts will push the economy into a tailspin and prove self-defeating. “Austerity is needed to prevent an even more savage and uncontrollable austerity,” he said.
The ECB temporarily suspended Greek debt as collateral for bank refinancing, after S&P declared Greece to be in selective default.