Everybody held his or her breath last weekend waiting for a positive outcome on the Irish referendum on the Lisbon Treaty. This came out with a resounding “yes” vote of almost two thirds majority having surprised even the most optimistic EU lobbyists. Only last year Ireland sported the David and Goliath story when they out-voted the Treaty with a 53 percentage rebuff to Brussels boffins. The turnout this time was higher at 59 per cent resulting in a big swing in favour of the EU institution. The welcome news is that Bank of Ireland and AIB share prices rebounded on the back of Irish vote.
Critics complained that fear played havoc among unemployed Irish workers who were told that refusing the EU would lead to worsening conditions. They feared more foreign investment would part company with the small Irish republic. It is good to point out how Ireland found itself the first Eurozone country to enter recession, with three main banks needing bailing out and property prices slumped and unemployment climbing. In a quick response, the government has bet everything on rescuing a banking sector that was crippled by billions of Euros in loans to property developers and spared no cash to nationalise the ailing banks. This move saved jobs. On the contrary, if the government’s pro Treaty measures were to fail, some commentators feared that the country would be unable to raise money in the bond markets and that an entire generation could be crippled by debts it couldn’t repay. With this background, one can observe how with only one year since the onset of recession, the economic outlook is still far from rosy, but the meltdown hasn’t happened, and depositors are slowly returning to those banks that have survived. As part of the behind the scenes negotiations prior to the “yes” vote the Irish won guarantees that Lisbon wouldn’t mean losing sovereignty over controversial matters like abortion and military neutrality. Ireland is the only member state among the 27 EU countries to place the Lisbon Treaty to a vote while the others (just like Malta) ratified it through their parliaments. For the limping Irish economy, the vote was the biggest gamble since the foundation of the Free State in 1922 and the positive outcome comes at a time when unemployment is soaring.
Like Malta, the deficit needs trimming. Only the Irish therapy needs to be deeper. Boldly, the government is slashing public expenditure to try to plug a €25 billion fiscal deficit for this year. The Irish prime minister expects parliament support for the setting of up an agency intended to purge the financial system of toxic assets, restart lending and reignite the economy. This is a tall order for a party which is falling in its popularity rating but the mood in the aftermath of the “Yes“ vote helps.
A recent survey showed that three out of every four small firms believe that a second rejection of the treaty could negatively impact small businesses and jobs. Pragmatists do ¬worry that cutting deals on the EU mainland could become harder if the Irish blocked the Treaty again. Now that the worst fears are over, it is a sign of relief that Ireland can look forward to its famed ability to attract foreign investment. A “yes“ vote had a resounding effect on the morale of the electorate which can now be proud to form part of a community of 500 million citizens. For the beleaguered Irish Prime Minister Brian Cowen, the positive result was in his words “the right thing for our own future and the future of our children”. The Irish press quoted him as saying that accepting the treaty would help the EU become “more efficient and more effective”.
One cannot underestimate the crucial meaning of this vote for the ailing Celtic Tiger. Last year the referendum saw a strong defence by the opposition party which successfully led the “No“ vote. Irish voters were told that the Treaty is too complex to be understood by the common folk. They were told that the Treaty will lead Irish sons to fight wars on the whims taken in Brussels. Furthermore, they were persuaded that member states are obliged to progressively improve their military capabilities, contribute to a start-up fund for military purposes, and are obliged to come to the assistance of another member state if it is subject to armed aggression on its territory – all this in fragrant disregard to Irish neutrality. They were imbued with fears that the low tax regime would have to go and with it see the exodus of foreign investors and more unemployment. All this culminated in a “No” vote as the Irish taught they could do without EU trappings.
This is partly true. Up to the start of 2007 one envied the steady growth of the Irish engine which surpassed all expectations and its economy delivering steady growth which saw full employment with a superior standard of living. For a while, voters forgot that the euro helped in no small part in supercharging the Irish economy in the past decade, imposing sound-money discipline and bringing previously extortionately high interest rates into line with the rest of the developed world. The Irish Development Agency worked miracles to attract foreign investors to make use of highly trained Irish workers amid a favourable low tax rate and easy access to UK markets. The Americans also saw the small Republic as a reliable partner to set up factories and expand into Europe. All this seems to have given false hopes of economic impregnability and the opposition party made a meal of the job in frightening voters that they will lose their sovereignty and open the door to abortion. They collectively voted “NO“ last year to the mind-boggling 294 page document much to the chagrin of the party in power led by prime minister Mr Cowen. Following this rejection, Brussels bearcats spread the rumours of a two tier Europe with errant boys relegated to a lower tier. Voters were made fully aware that if this time round Ireland voted no, as it would spoil reforms for the rest of Europe. One of the Irish newspaper was poignant when it quoted a teenager Mr Shane Ganor who proudly stated that his “Yes“ vote was as much for Europe as for Ireland. “After all Europe has given us, it’s time to give something back,” he said. Like Malta the Irish prime minister has to find a quick solution to improve the country’s economic failures. They have tried many ways to trim the country’s public overhead. Perhaps Mr Cowen is not in such an optimistic mood as our prime minister’s is when he claimed to have the powers to calm the waters. Dr Gonzi said last Sunday that he is unveiling a budget that would show how Malta had managed to ride the waves brought about by the economic crisis, compared to other countries. Perhaps he can spare a thought on the battered Mr Cowen and show him the ropes as how to avoid the meltdown. For Mr Cowen, the once booming economy has contracted at a fast rate while unemployment doubled. Unlike Malta they had to shore up the nation’s banks. Luckily, none of our banks have been infected with the mortgage bug that saw Allied Irish Banks Plc and Bank of Ireland Plc face surging bad debts.
Dr Gonzi can therefore splurge on the money saved on bank bailouts and redirect it to reform the ailing manufacturing and tourism economy. The roads infrastructure also is in a bad shape apart from the clarion call to re-tooling of the island’s energy utility. Our deficit is around four per cent, instead of the projected 1.5 per cent. By comparison, the Irish finances are in the doldrums. The annual deficit reaches a high of 12 per cent (four times the Maastricht threshold) while debt peaked at €20.2 billion.
To conclude on a positive note, one of the Irish ministers said that the “Yes“ vote in the referendum could mark the turning point in Ireland’s recovery from the recession.
George Mangion
Partner at PKF – an audit and business advisory firm
