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Ireland to hold referendum on EU fiscal treaty

Ireland's PM Kenny looks during a meeting with his Italian counterpart Monti in Rome
Ireland's PM Kenny looks during a meeting with his Italian counterpart Monti in Rome

By Conor Humphries and Lorraine Turner

DUBLIN (Reuters) - Ireland will hold a referendum on Europe's new fiscal treaty, Prime Minister Enda Kenny said on Tuesday, setting the stage for the first popular vote on the German-led plan for stricter budget discipline across the region.

Support for the European Union has cooled in Ireland after its financial crisis, meaning there is no guarantee a vote will succeed. A rejection would damage Dublin's long-term funding prospects and cast doubt on the country's commitment to the single currency.

After joining 24 other EU states last month in agreeing the pact for stricter budget discipline, Kenny sought advice from the state's lawyer on whether a vote was necessary and told parliament that on balance, a referendum would be required.

"The Irish people will be asked for their authorization in a referendum to ratify the European Stability Treaty," Kenny told parliament, adding that arrangements on the vote would be made in the coming weeks.

"I strongly believe that it is very much in Ireland's national interest that this treaty be approved."

Unlike most other European countries, Irish citizens are entitled to vote on any major transfer of powers to Brussels. They rejected the last two European referendums, most recently in 2008, before passing them once concessions were offered.

But with the new pact set to come into effect once 12 states have ratified it, the government is likely to have just one shot at winning approval for it. That prompted the country's European Affairs minister to warn last month that it would be hard for Ireland to remain in the euro zone in the event of a 'No' vote.

"It will be pretty hard and certainly won't be a walkover. The last number of referendums have got tighter and the EU is probably less popular now than before," said Eoin O'Malley, a politics lecturer at Dublin City University.

"One of the things that the government will try and do is frame it as economically suicidal not to accept it ... I suspect it will come down to who wins that framing debate."

IMPORTANT IMPLICATIONS

Ireland's return to mild economic growth last year and its success in meeting the targets set under its EU/IMF bailout has distanced it from fellow bailout recipients Greece and Portugal.

The country's borrowing costs have more than halved on secondary markets since last July with 10-year paper trading at 6.89 percent on Tuesday, the lowest level since the lead up to the bailout in October 2010.

However a rejection of the treaty would likely reverse that progress rapidly.

A 'no' vote would bar Dublin from accessing the European Stability Mechanism (ESM), the permanent successor to the euro zone's current rescue fund which Ireland is tapping as part of an EU/IMF bailout that runs until the end of 2013.

Ireland aims to resume issuing debt on bond markets later this year as a first step towards exiting the bailout on schedule, but with some 20 billion euros of borrowing costs to cover in 2014, most analysts believe it will need fresh official funding to meet some of its commitments.

"It (the vote) has important implications for Ireland potentially over the next few years," said Dermot O'Leary, Chief Economist at Goodbody Stockbrokers.

"There is a reasonable prospect that Ireland will need further funding in the future, and it may indeed come from the ESM."

Deputy Prime Minister Eamon Gilmore said that while Ireland intended to emerge from its bailout without having to resort to the ESM, the facility was an important backstop that would further enhance international confidence in the country.

A poll last month suggested the treaty would narrowly pass with 40 percent of those questioned saying they would vote 'yes'. Another 36 percent opposed the treaty, while a quarter of voters were undecided.

Ireland's main opposition party Fianna Fail has said it will join the governing Fine Gael and Labor parties in campaigning for a 'Yes' vote.

Sinn Fein leader Gerry Adams, whose party forms the second largest opposition block in the lower house and have seen their popularity surge over their anti-austerity stance, said his deputies would campaign against the treaty.

On the streets of Dublin, where nine out of the 10 people Reuters spoke to did not know what the referendum was about, it was clear the government have a hard job ahead of them.

"I agree we should have a referendum, but I don't understand what it's about," said Larry Kane, a 75-year-old former construction worker.

(Writing by Padraic Halpin; Editing by Patrick Graham)

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