LAST week I travelled to Dublin to report on the Irish referendum. Irish voters in the end voted in favour of ratifying the Eurozone’s fiscal compact by a wide margin, but there was little celebration.
In fact, Taoiseach Enda Kenny got straight on the phone to Angela Merkel to plead for a deal on the country’s crippling bank debt, then called the likes of François Hollande and Mariano Rajoy to peddle Ireland’s show of commitment to the Eurozone project.
Not quite the famous “craic” the Irish pride themselves on.
It’s 18 months since Ireland’s decade-long property bubble burst and the ensuing banking crisis brought the Celtic tiger limping to the EU and IMF for a €67.5bn (£54.7bn) bailout.
At the time, Ireland pledged extravagant banking guarantees and tight fiscal discipline to gets its hands on the cash and confidence it needed to keep afloat.
That gave ammunition to the “no” camp, led by Sinn Fein. It urged the Irish to vote against the fiscal compact as a protest against the austerity it believes is stifling growth, and signs of the government’s perceived mismanagement.
SINN FEIN WANTS TO SPEND NOT CUT
Speaking in an interview with CNBC after the result showed Sinn Fein had been roundly defeated, party leader Gerry Adams told me he firmly believes that austerity doesn’t work and Ireland can only come out of recession by stimulus.
That’s a line of argument common to opposition leaders across Europe.
Adams also takes exception to the fact that cutbacks being endured by Irish citizens are being used to pay back bank bondholders.
The “yes” camp, however, said the fiscal compact will cement confidence and stability in an economy showing tentative signs of recovery.
A PRAGMATIC CHOICE
In the end, the electorate voted 60.3 per cent in favour. However, this mustn’t be perceived as a ringing endorsement of the Eurozone project more generally.
Many voters were more pragmatic about the consequences of a “no” vote. It wouldn’t just have been a protest; it would have meant the end of access to the European Stability Mechanism.
Consider this. The existing Irish bailout expires at the end of next year and then in 2014 the country needs €18bn of funding to keep its head above the water.
That money has to come from a suitably cheap return to the government bond markets or more bailout money.
HEADWINDS FROM ABROAD
Now consider the external headwinds represented neatly by Spanish bond yields at levels that prompted Ireland to fold, and issues at home like the fact that banks are still in hock to a residential mortgage default rate of 10 per cent and rising.
The Irish “yes” vote isn’t a rubber stamp on the fiscal compact. It’s merely the start of the next phase of yet another attempt to find a way to make the euro work.
Rebecca Meehan is an anchor at CNBC