Noonan: Irish Referendum on Fiscal Compact Could Become Vote on Euro

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Any referendum on the new European Union accord for a fiscal compact may effectively be a vote on Ireland’s continued euro membership, said Irish Finance Minister Michael Noonan.

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By the end of the year, Ireland should have received a first draft of the treaty agreed to by 26 of the 27 EU members last week, and will then begin to assess whether it needs to hold a vote. Irish voters have twice rejected changes to Europe’s governing treaties in the last decade.

“It really comes down on this occasion to a very simple issue; do you want to continue in the euro or not,” Noonan said. “Faced with that question, I think the Irish people will pass such a referendum.”

Still, while EU leaders took “significant steps” at a December 8-9 summit in Brussels to alleviate investor concerns, they “urgently” need to put in place measures to restore confidence in the euro, said Noonan.

The yield on Ireland’s 10-year bonds rose to 8.77 percent today, up from 8.06 percent a month earlier. Spain’s 10-year bond yielded 5.69 percent while Italy’s was at 6.8 percent. The yield on Germany’s benchmark 10-year bund was 1.92 percent.

Michael McGrath, finance spokesman for the opposition political party Fianna Fail, said that by linking the EU accord with Ireland’s continued membership in the euro, Noonan is making “a highly political and deliberate attempt to silence legitimate criticism” of the accord.

“The fact that the minister’s language mirrors almost exactly the proposition used by France and Germany to scupper recent plans for a referendum in Greece will not be lost on people,” he said in an e-mailed statement.

Last month, European leaders for the first time raised the prospect of the euro area collapsing by framing Greece’s proposed referendum on the terms of its bailout as a vote on nation’s future in the currency union. Greece ultimately dropped the planned vote.

The fiscal compact agreed to last week by all but one of the EU’s 27 members — British Prime Minister David Cameron refused to back the move, saying Britain needed guarantees in a protocol protecting its financial services industry — requires nations to virtually eliminate structural deficits, creates an “automatic correction mechanism,” and enshrines the new measures in national law. States exceeding the bloc’s deficit limit of 3 percent of gross domestic product would essentially forfeit their fiscal sovereignty to an as yet to be determined regulating body.

Noonan is “not certain” that Ireland will need a referendum on the accord. Whether the issue must go to a vote depends on whether any such text would amount to Irish constitutional change. Prime Minister Enda Kenny said last month it would be “very challenging” to pass a vote on such proposals.

Irish voters rejected treaty changes in 2001 and again in 2008, but passed both proposals in subsequent referendums. In 2001, Ireland voted against the Nice Treaty, which paved the way for the then 15-nation EU to accept members from eastern Europe. A second ballot was won in October 2002. In 2008, voters rejected the Lisbon Treaty, accepting it a year later after securing guarantees on Irish neutrality and taxes.

“Ireland needs to be in the euro; a euro breakup would be disastrous for Ireland,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “I would agree with Noonan that if it is a referendum on the euro it is more likely to be passed than something on fiscal austerity and greater fiscal union.”

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