Fascinating news from Dublin today that Ireland is bowing to pressure at home and holding a referendum on the new Fiscal Union Treaty after all. It was always doubtful that the Irish constitution would allow them to ratify it without a popular vote: the new President Michael Higgins seemed to think a vote was necessary, a poll suggested 72% of the population wanted one, and both Fianna Fail and Sinn Fein had been preparing legal challenges to try and force a ballot on the issue.
That is not to say they won’t sign the Treaty in Brussels in three days time. Taoiseach Enda Kenny will line up with 25 others in a formal signing ceremony (only the UK and the Czech Republic will be missing), but ratifying it will now depend on the will of the Irish people. Nor can the Irish stop it happening (as they twice did before, vetoing EU treaties in both 2001 and 2008, only to be sent back to vote again until they came up with the right answer) because this treaty only requires 12 participants to come into force.
So what’s going to happen? There is a huge downside for Dublin in joining Britain on the sidelines: Merkel and Sarkozy wrote into the Treaty that only those who signed on the dotted line would be eligible for bail-out funds after March 2013. The Irish have had one big bailout of €67.5bn already, and may get by without a second one.
They have already been able to dip their toes back into the money markets to borrow money in a way that neither Greece nor Portugal have been able to. But, and it’s a big ‘but’, it would not take much of an economic turn for the worse in the Eurozone for Dublin to be back needing outside help again. It still looks as if the Irish economy will grow very slowly this year, but that growth will only come from exports, not from domestic demand, so trouble in the Eurozone or the UK would mean big trouble across the Irish Sea.
Will this threat be enough to bend Ireland to the will of Berlin and Paris? And what happens if they call ‘Merkozy’s’ bluff. If Dublin were to be forced into defaulting on its debts å la Greece (as many there would like to do) it would cause as big a problem in Europe and it would in Ireland. It’s a classic case of when you owe the bank a thousand pounds you have a problem, but when you owe it a hundred million pounds they have a problem. Having nationalised the debts of their failing banks after the crisis of 2008, those owed money by Ireland would have a very big problem indeed if they even threatened a default.
The big question will probably be whether it is perceived in Ireland that a ‘no’ vote would effectively be a vote to leave the Euro. Supporters of the treaty will undoubtedly try and paint it as exactly that. Which makes that ‘yes’ or ‘no’ a very big question indeed.
So far it seems this will be the only referendum on the Fiscal Treaty. Denmark thinks its constitution does not require one. France, if François Hollande wins the Presidency in May, could try to renegotiate, but there’s no talk of putting it to the people. In Germany the Constitutional Court might cause problems; they are already making noises about the constitutionality of their involvement in the EFSF, the main bailout fund. But otherwise Chancellor Merkel will get it through easily.
So there will be a grand signing ceremony on Friday, but increasingly David Cameron is not the only one having problems with this treaty. It’ll be 25 vs 2 in Brussels. By the time the ratification process is over, the maths may be rather different.