The economics of the Lisbon vote

In this post, I want to raise the economic consequences of the vote on the Lisbon Treaty on October 2nd, not the economic consequences of the Lisbon Treaty itself. The post is prompted by my amazement at hearing the comments of Professor Ray Kinsella of the Smurfit Business School when debating the economic consequences of a No vote with Pramit Ghose of Bloxham on Morning Ireland this morning.

Ghose argued that the financial markets will exact a price if there is No vote on October 2nd. Noting that 80% of Ireland’s debt is owned by international investors, he argued that a No vote would raise uncertainty for these investors who would consequently seek an extra premium for lending to Ireland. Going back to the experience in January–February earlier this year when Anglo-Irish bank was nationalised, he suggested that this premium could be an extra 1% on the borrowing rate the Irish government would have to pay.

This view of an adverse financial fallout from a No vote was disputed by Ray Kinsella, essentially on the basis of efficient market theory. His argument essentially is that the markets are already pricing in the possibility of Ireland saying No, so that if we actually say No, there will be no effect on the premium paid over German Bunds. As evidence for this, he noted that the yield premium over Bunds has been narrowing in recent months, again underlining the complacency with which the markets are viewing a No vote.

Now, Ray Kinsella went on to say that he did not think that the Treaty was good for either Ireland or Europe, so presumably he will be a No voter himself. But, from where I sit, there is a big difference between factoring in the probability of a No vote and the actual reality of a No vote. If markets are reading the opinion polls, they might assess the probability at, say, 40%. If voters do reject the Treaty, the probability ex post is 100%. This is surely not an insignificant difference.

More generally, I was interested to learn that there are economists prominent in public debate who are advocating a No vote on 2nd October. This seems to fly in the face of the Indecon survey which reported that Ireland’s economists are strongly in favour of a Yes vote, though their survey was confined to academic and research institute economists and specifically excluded economists working in the media and banks or other financial institutions. Their findings indicate that 91% of the economists surveyed believed that, taking all factors into account, Ireland’s overall economic interests would be best served by a ‘Yes’ vote.

As I was on holiday at the time, I did not respond to the Indecon survey, but I am a strong supporter of a Yes vote on October 2nd. Perhaps, given the understandable attention to NAMA in these posts over recent weeks, we have not given enough attention to debating the issues at stake in the Lisbon Treaty referendum. Although I want to confine this thread to what readers think is riding on the outcome of the referendum for the economy, if demand is there a thread could be opened on the economic implications of the Treaty provisions themselves. While financial markets are one channel whereby the referendum vote will affect the economy, there are clearly other channels as well, including foreign investment inflows as was highlighted at the benefit bash in Farmleigh over the weekend.

Certainly, Ray Kinsella’s comments were a wake-up call for me that Yes supporters can leave nothing to chance for referendum day.

55 thoughts on “The economics of the Lisbon vote”

  1. There is a good LSE podcast of a talk entitled a “An EU ‘Fit for Purpose’ in the Global Age” which took place on 9 March 2009. The issue of what will happen if Lisbon is not passed is touched on. David Milliband makes the point about the UK Conservatives having been against the last number of Treaties.

    Frans Timmermans, Dutch Europe Minister, makes a telling comment at 1hr 06min 40secs where he says that there is a big danger for smaller member states if Lisbon is not passed as the larger EU states will feel compelled to club together to seek solutions to big problems. There is a real danger that not only Ireland but other small countries will be left behind. The weakening of the voices of other small countries is a danger for Ireland apart form the danger that we will be the one country that is not asked to sign up to any project to move on separately. This talk was addressed to a UK audience.

    Go to the link and then search for “Fit For Purpose”:

  2. I think Pramit Ghose take on markets might be a little more accurate that Professor Kinsella. Currently, most market participants view the probability of a No vote as extremely low. If there were to be a no vote, theconsensus my view it as precipitating i) a political crisis leading to the collapse of the government ii) the collapse of NAMA to be replaced by what exactly iii) difficulties in our relationship with Europe leading to a fear of the withdrawal of ECB support to the banking system. How might this play out in markets
    *widening of sovereign sprrads
    *collapse in Irish risk assets-the banks
    *withdrawal of wholesale funding from the banking system-if there is any left.
    In short a large quantity of organic waste would come into contact with the air conditioning. Roll up, roll up take your bets.

  3. National debt will be north of €70 bill by year’s end, so 100 bp would cost €700 mill pa (eventually – only a portion is short/floating). But we could be issuing as much as another €20 bill next year, so there would be substantial immediate cost if the spread widened appreciably, and I think it would.

    Withdrawal of ECB liquidity support or further loss of bank deposits just does not bear thinking about. A Irish No vote could be one of the most spectacular ogs in football history.

  4. Its a big mistake to think that most of the ‘no’ supporters seek economic prosperity and are swayed by rational argument. They don’t. Most of them are from the political extremes (extreme-left wingers, extreme-right wingers, extreme Irish nationalists, extreme British nationalists, catholic fundamentalists, protestant fundamentalists, ultra-environmentalists et al). All of these groups seek some sort of economic crisis and political upheaval to advance their political objectives. The fact that they all hate each other is irrelevant. Being told that a ‘no’ vote would deter foreign investment in Ireland and increase the premium on borrowing by the Irish Government would only make them more likely to vote ‘no’. Sad but true.

  5. The politicians of the larger EU states might or might not decide to punish Ireland for refusing a second time to vote as directed. To damage us would be tempting but dangerous, as it would give ammunition to their own Euro sceptics. It would reinforce the belief that the EU leadership is an anti-democratic cabal. There would have to be, initially at least, a defence of our right to vote as we think fit.

    I suspect we would eventually be punished. The Yes forces in this country, indignant at having their authority flouted a second time, would – I fear – insist on it.

  6. The UK Conservatives could use our No vote to unravel much of the progress towards EU integration.


    Many women voted No and most of them would not fall into the 30% who are going to vote No because they are part of fringe groups or arenot open to rational debate.

  7. The Lisbon Treaty is a list of amendments to the exiting EU Treaties which will help to improve the decision making process at the EU level and will allow a more coherent and stronger international role of the EU to deal with global challenges. This improved governance will have positive effects on economic growth. A YES vote will allow not only Ireland but all other European countries to reap the benefits of better governance at the EU leve. A NO vote will impose a cost not only on Ireland in terms of foregone economic growth but on all

  8. The Lisbon Treaty is a list of amendments to the exiting EU Treaties which will help to improve the decision making process at the EU level and will allow a more coherent and stronger international role of the EU to deal with global challenges. This improved governance will have positive effects on economic growth. A YES vote will allow not only Ireland but all other European countries to reap the benefits of better governance at the EU level. A NO vote will impose a cost not only on Ireland in terms of foregone economic growth but on all European countries which have ratified the Lisbon Treaty. As much as Ireland needs Europe, Europe needs Ireland. The vote on October 2nd is such a moment when the Irish citizens are presented with the opportuniy to show solidarity with Europe. Europe has never and will never turn its back to Ireland.

  9. “i) a political crisis leading to the collapse of the government”

    That’s why I’ll be voting no

    “The politicians of the larger EU states might or might not decide to punish Ireland for refusing a second time to vote as directed.”

    So, we are being directed to vote yes. And we may be punished if we don’t.

    So exercising our free will, and democratically deciding to vote no overall, might lead to punishment.

    No one can see how people might see democracy as being secondary here?

  10. Ray Kinsella gets alot of airtime as RTE seem to love him (and the times give him a bit of space here and there). I’m not his biggest fan and in the case of the Lisbon treaty especially he’s really not to be listened to.

    Prof. Kinsella is of a very right wing catholic persuasion. (He’s done interviews for Coir) I believe he is over influenced by his pro-life, anti-gay, excuse me, pro-family, views.

    I don’t mean to put down his simply argument because he’s opposed to the treaty and i am not, but his logic is flawed, and I believe clouded.

  11. At the end of the day, having tried to sift through all the intricate constitutional arguments for and against the Lisbon Treaty, many voters will – I hope – make their decision based on the reasonableness – or otherwise – of those supporting and those opposing the Treaty. On these grounds I have no hesitation in voting YES.

  12. I dont know if this can be discussed without attracting the crazies to the site.
    Or is it too late.
    As an actual undecided voter I see enough on both sides to cringe and vomit violently at.
    One point of observation: there are just as many crazies wanting to vote yes as there is to vote no. It is just a different type of crazy.

    As a country, we have placed ourselves in a situation where it is clear for the most part, as CMC outlined, that a vote for Lisbon is in the economic and therefore the national interest.

    But one has to recognise that Lisbon is so convoluted that there is the potential seeds for EU disintergration within in it. That the flaws within it may produce the discord in years to come that will affect the union.

    Still undecided

  13. To say a no vote will lead to an added 1% to the cost of gov’t borrowing because the risk is already discounted is very optimistic to my eyes. The electorate have already flirted with economic suicide, we now get a chance to redeem ourselves. All over Europe they are saying the Irish are too intelligent to commit economic hari kari. I believe that very little risk is reflected in current gov’t cost of money rates. The day after a no vote it is not only gov’t debt that will be degraded but the Irish reputation for being astute business people will take a major hit. The question to be answered will be ” Would you lend to those dilettantes and at what price.” The vote Oct. 2nd is far more important than most people seem to realise. In Frankfurt the bankers eyes will narrow and they will have a pinched look on their faces.

  14. I heard the Kinsella interview and was staggered. I agree with Alan that there is a huge difference between factoring in 40% and 100% of NO.

    I resent the carrot and stick approach of Barosso. He should have kept his mouth shut this time, as he should have last time. The same applies to Sarkozy. All they will do is provoke a reaction against interfering foreigners. Some of these people never learn. The idea that they will be running the EU, and that there is even a remote prospect of the war criminal Bliar stepping into the new permanent presidency fills me with horror.

    Despite this, the financial/economic considerations persuade me that it is firmly in Ireland’s interest to vote YES, and I have no intention of cutting off my nose to spite Europe’s face.

  15. The point that Ghose was making is that a “No” vote would generate uncertainty in the markets about Ireland’s relations with the EU.

    Kinsella’s reply was that the markets had already factored it in. This implies the markets know something we don’t about the outcome of the poll on 2 October.

    Those who chose to vote No should be realistic about consequences. Markets will recognise a simple fact: the 27 member states of the EU have agreed that the EU needs the reforms in the Lisbon Treaty. If Lisbon does not come into effect, no one knows what reforms can be introduced but there is bound to be some effort to remedy the problems that the member states have identified.

    Furthermore, in that scenario, we won’t know what Ireland wants or is not willing to accept if we reject Lisbon despite being given guarantees that Lisbon does not affect the issues the Irish people said they were worried about.

    It is therefore evident that a No vote will introduce major uncertainty about the EU and specifically about our position in the development of Europe (and it’s no use saying we can’t get kicked out – the EU has always been a work in progress. That was explicit when we joined and has been underlined time and again)

    Those who vote No have offered many reasons to oppose Lisbon. Judge them as you will but let’s not pretend that there will be no cost. Kinsella should play it straight with the economics even if he has other objections to Lisbon

  16. I think that Iulia Siedschlag has made an important point that the people of Ireland will react to. Europe and the European peoples need Lisbon. I don’t believe that Irish people are insular or greedy or that they don’t care about the rest of Europe. I think the No side played to their sense of duty the last time by propogating the myth that citizens would vote despite the fact that more individual European citizens have voted for this project than against and 7,000 parliamentariand in Europe have voted for this.

    I have been sceptical about the european treaties for many years because of the bureaucratic nature of the EC and the pathetic performance of our parliamentarians on European issues. I thougth long and hard about this treaty. Finally we get a treaty that addresses my concerns, a Treaty which will make our politicians take responsibility for Eu laws, a Treaty which creates transparency in EU decision taking, a treaty which enshrines international law as a binding goal of one of the wealthiest parts of the world, a Treaty which creates a framework for policies for attacking climate change, a Treaty which deals with trafficking of women, a Treaty which might allow us to quickly develop EU banking regulation, a Treaty which allows not only the Irish State but the Irish people to make a difference in world affairs. The EU is not perfect but at last we have a treaty that people other than bureaucrats contributed to. I will be voting yes.

  17. In his original post, Alan Matthews guesses the markets are factoring in maybe a 40% probability of a No vote.

    On Paddy Power, Yes is 1/8, No is 9/2, over-round is 107.1%, implying a No probability of 17%. While 9/2 shots win two-horse races sometimes, it always comes as a bit of a shock!

  18. “But, from where I sit, there is a big difference between factoring in the probability of a No vote and the actual reality of a No vote. If markets are reading the opinion polls, they might assess the probability at, say, 40%. If voters do reject the Treaty, the probability ex post is 100%. This is surely not an insignificant difference.”

    You’re being quite diplomatic here, I feel. It’s actually astonishing that any respected economist could come to the conclusion Kinsella did.

  19. Their is no certainty that Lisbon will be ratified, Poland and the Czech republic have still to ratify it and the Tories in Britain are under severe pressure to allow a plebiscite on Lisbon even if the Irish reverse their “No” vote and even if Lisbon had been voted into law.

    In Ireland, this election is being fought on both sides, by scare tactics, my former economics lecturer Pat Cox had nothing to say about NAMA but is full of doom laden prognostications if we dare to vote “no” Again! Personally, I feel like the Iranian opposition who’s votes “disappeared”. If the yes voters ratify the Treaty and it is ascertained, that 20% of them did so, without reading it, will there be another referendum? Of course not. That would be absurd. On June 2nd 57% of voters all across Europe did not even bother to vote in elections for the European Parliament. Hardly, a ringing endorsement of the EU never mind Lisbon! What is to be done about such impudence?

    Any fool, can see, that if we want to continue to borrow 100 million a day and continue to live way beyond our means, then we must vote “Yes” end of story! Some commentators twist this notion into the idea that a “yes” vote is our patriotic duty. Just as it is our patriotic duty I suppose, to borrow and pay ourselves more than anybody else in the world. Lisbon voting is nothing more than turning the credit tap on or off or keeping the credit spreads from running amok again.

  20. It’s amazing how the Lisbon debate reveals the lack of independent thinking in even academically-trained professionals.

    None of the Lisbon Yessirs on this thread has quoted the content of the treaty in their arguments. We hear platitudes but no substantive arguments from the Yessirs.

    Yet many of the same posters attack anybody who might differ from them. The principle of democracy is in great danger not only in Ireland and the EU but on!

    Voting No to Lisbon is the right choice for many reasons, not least that the electorate already voted in 2008 and are now asked to re-vote on precisely the same treaty. Why aren’t we asked to vote again in general elections? It’s a disgrace that the vote has not been respected.

    The other reasons to vote no include Ireland’s veto, militarisation, EU citizenship, and many other issues. Please go and inform yourselves on unbiased web sites.

    Why do the Yessirs not debate the issue on the content of the treaty? They retreat to imaginary threats about membership of the EU and similar fantasies.

  21. “If the yes voters ratify the Treaty and it is ascertained, that 20% of them did so, without reading it, will there be another referendum?”

    In fairness, an answer in the affirmative is always more conclusive than a rejection. A No vote can be persuaded over by addressing people’s concerns – the second referendum is essentially asking “do you accept that your concerns have been adequately addressed?” If we say no again, so be it.

    Obviously, it’s not quite that simple, but the old “there wouldn’t be a second referendum if we’d voted yet” argument isn’t quite as insightful as some people would have you believe.

  22. “the larger EU states will feel compelled to club together to seek solutions to big problems”

    First off, they already can. Enhanced Cooperation has existed since Nice and was made easier by Amsterdam. However there seems to be a strand of thinking in those favouring a Yes vote that we must all be in lockstep. We’ve already seen what being in lockstep with a low interest rate will do to a booming economy. Expand that to political and social lockstep and we get… what?

    It’s about time we got back to basics – i.e. a European Economic Community – and stop codding ourselves that (a) the EU can be a world power and (b) that German tanks will cross into the Ardennes five minutes after a yes vote. If I were German I’d be pissed that given some of the Yes op-eds in recent weeks they are still the bogeymen Euro-integrationists throw up, decades after they threw in their lot with their neighbours (and bankrolled them in the process)

  23. @ All

    sorry, joining this late, but having spoken with a fairly senior sovereign bond trader who works for a very large investment bank in London, they’re working off an 80% assumption that Lisbon gets a Yes here. Ray Kinsella, i would suggest, is talking out his ****….

  24. I fully agree with Colm McCarthy that “a No vote could be one of the most spectacular ogs in football history”. However, I don’t think the outcome would be as apocalyptic as some people seem to think. It would be greeted with a deep groan throughout the EU and its institutions. Yes, there would be anger, but I suspect it would be short-lived.

    Ireland’s membership of the Eurozone is the key factor that will modify the reactions. It appears that the ECB, with the full support of the other EU institutions, is prepared to bend over backwards to support the weaker Eurozone members. I accept there would be calls to eject Ireland from the Euro, but I am reasonably confident that more rational minds would prevail.

    However, what is extremely likely, in the event of a No vote, is a more rapid withdrawal by the ECB of its liquidity support for the Irish banking system (and the indirect financing of Government debt). NAMA would be forced to liquidate non-performing loans much sooner to redeem the bonds issued to the banks so that the ECB’s liquidity advances could be repaid. All this is likely to lead to widening spreads and the risk of roll-over penalties. It might even hasten the temporary nationalisation of the banks which would be the most effective and efficient outcome.

    But we would be fooling ourselves if we were to think that the EU would tie itself up in knots because of a No vote in Ireland. The EU focus would shift very quickly on to how the incoming Conservative government in the UK would play an Irish No vote.

  25. “The point of my article was that any claim of any short term economic benefit or cost to the Irish economy, either for a ‘yes’ or a ‘no’ vote and from either side, was spurious. Both sides should refrain from using our current economic circumstances to help their cause. Lisbon will not have a significant effect on Ireland’s economic prospects until at least the medium term, say 5-10 years into the future.

    The Senator’s essay, written as a direct reply to mine, focuses on rather more long term prospects: a potential (relative) increase or decrease of foreign direct investment into Ireland, and the central role of investor confidence in multinational investment decisions. My understanding of the Senator’s point is that Ireland’s attractiveness to these multinationals will be somehow lessened if we do not ratify the treaty. Thus, according to the Senator, a ‘yes’ vote is the best option for the country on the basis of a reduction in international investors’ uncertainty.

    I am skeptical of this type of reasoning for several reasons.”

    Kinsella’s arguments :

    Now don’t tell me that we have great education in this country and simultaneously decry an argument because you dislike a proponent of that argument. I don’t think you’d get very far with that approach in the field of informal logic.

    If you don’t agree with a view, then *stating reasons why* would be a great help, thanks.

    To my mind, there’s a link between NAMA and lisbon, insofar as the debt load incurred by irish private companies (banks), for which we’ve seen breakdowns of where it was lent in turn, was originally lent to these private companies by who exactly? – presumably at least somewhat by dutch and german pension funds.

    Continental europe, with it’s rapidly ageing population (IIRC e.g. belgium will have >50% pop over 65 by 2025), whose life savings are all invested in funds etc, depend and rely heavily on the younger workers of europe (and emerging markets) to keep generating income for them in thier dotage.

    Viz Iceland, recently forming a view that Iceland should not be forced to pay more than a certain percentage of GDP for the nationalised debts of it’s superstar bankers.
    I would imagine that they view this as being in thier economic interest, not to be lumbered with crippling debt.

    And would it be in irelands interest to be lumbered with crippling debt? Owed to who? These Euro pension funds?

    But, you say, a super-dooper EU will be better able to meet future challanges and be better for the economy.

    I’m afraid the reality is that there may not in fact be much in the way of FDI at all : USA debts now exceed 300% GDP, and the chinese (holding $2Trilion in reserves) want to shift away from the dollar as world reserve currency.

    All ‘developed’ countries face a generation-long period of drawdown on invested funds to nurse wealthy pensioners (the non-wealthy pensioners can review the latest on privatised medicine’s ‘death boards’, euthanisation, etc).

    And control over FDI will of course be centralised in brussels, where (I spent 7 years there) half the people have never even heard of ireland.

    These new challenges the new super-dooper EU will face include, amongst others, the problem that changes to economic growth, historically, correlates pretty closely with changes to use of energy.
    As we enter a world of ever-increasing energy use, and an actual plateau and possible decrease in available energy supply, it’s clear that one of the problems is that the possibility of permanent growth may be an illusion.

    I think that the politics of the EU, when it comes to investing in small countries, will be focused on geopolitically important areas like the baltic, the balkans, the levant, the magreb, and central europe.

    We might find a niche running nursing homes with nice views of hills and lakes, changing the nappies and dispensing meds.

    As the rest of europe ‘opens’ to a neo-liberal economic footing, Ireland will not longer be the freewheeling exception that attracts the american money. There won’t be much US money, and the rest will go east.

    So, to restate the question : What Will The Romans Ever Do For Us ??

    I’ll sign of with this:
    The rebuttal criterion requires that one who presents an argument for or against a position should attempt to provide an effective rebuttal to all serious challenges to the argument or the position it supports and to the strongest arguments for viable alternative positions. Fallacies such as red herring, straw man, and poisoning the well fail to meet this criterion because they attack the arguer rather than the argument or use argumentative devices that divert attention away from the issue at stake.

  26. I think it’s clear from this debate that for countries like Ireland, the Lisbon debate has nothing to do with the content of the Treaty. The ability of the smaller nations within the EU to influence its future shape is very limited. I think a more honest treatment of that position would be healthy.

    When the chips are down as in the EMU crisis in the 90s, countries like Ireland fared poorly and will continue to do so. We represent a tiny proportion of the EU and membership means more to us than it does to the EU.

    It may in fact be that ECB credit lines are being extended to assist with a yes vote. What is clear is that Ireland wont be allowed to spend at the insane levels at which it is currently burning EU cash. Someone will intervene to stop this behaviour – either the EU in withdrawing credit or IMF intervening to stabilise an out-of-control economy. All outcomes will be painful and prolonged.

    The Lisbon Treaty represents a large and further dilution of our influence in Europe and is a significant change in the nature of the EU. Our decision on October 2 is whether we ease the path of that change and avoid the wrath of the larger states or vote no in our own long-term interests and seek aliiances within the other smaller states to help shape a Europe that values all its members.

  27. @ pol o duibhir

    “the financial/economic considerations persuade me that it is firmly in Ireland’s interest to vote YES”

    I suspect you’re right.

    It’s the longer term political/social consequences that bother me.

    This is about the bureaucrats’ grip on EU power and their intolerance of any meaningful dissent. The consequences, here and abroad, of the disregard of popular feeling (as expressed in our No vote and the French and Dutch rejection of the earlier form of the Treaty) are unknowable.

    One possible consequence, and the possibility increases with each smothering of dissent, is the tearing apart of the entire EU project, which would be a real tragedy.

    It’s dangerous to discount the longterm effect of loading so much fear, threat and bluff into what is allegedly a democratic choice. You get the result you want – and it might or might not be the best result – but at a price.

    Of course, in this country, we wouldn’t know anything about creating longterm pain as a price for a shortterm party.

  28. I do not like the Lisbon Treaty one bit. It transfers powers to Brussels that should stay with the Member States; it creates additional posts that will confuse decision making even further; and the double majority voting will enhance gridlock. While some people will be miffed if Ireland will vote no, others will be miffed if Ireland will vote yes. Therefore, I don’t think that the Lisbon Treaty has any economic implications to speak of. This debate is a red herring.

    I think Ireland should vote no, by the way, as that will create the opportunity (in a decade or so) to write a proper constitutional treaty. The priority then should be to end the tricameral parliament and separate the powers of the Commission.

  29. @ Dave
    “In fairness, an answer in the affirmative is always more conclusive than a rejection. A No vote can be persuaded over by addressing people’s concerns – the second referendum is essentially asking “do you accept that your concerns have been adequately addressed?” If we say no again, so be it.
    Obviously, it’s not quite that simple, but the old “there wouldn’t be a second referendum if we’d voted yet” argument isn’t quite as insightful as some people would have you believe.”
    The reason i dislike an asymmetric re-referendum like this one:
    You assume each voters decision is made with certainty i.e. they express their view at a given point and it is their absolute view. I dont believe this.

    If instead we imagine that each individuals decision includes some uncertainty(u) (e.g. Y*=XB+u) and the person votes yes if Y*>0, then in a once off referendum, the aggregate of all the indivuals u’s may push the number of yes voters over the 50% mark. (or could go the other way). The important point is there’s an equal chance of both (if u is symmetric). However if you only re-run in the advent of a ‘no’ then you are biasing the whole process in favour of a yes.

    Also, to suggest that a re-run is fine since it allows people to answer yes if they “accept that your concerns have been adequately addressed?”, ignores the counter argument that it prevents people who have altered their view of the consequence negatively to change to a ‘no’.

    [If we really cared about whether the decision reflects the views of the citizens a more democratic solution is to have a representative survey every x years and if the majority say ‘no’ after an original ‘yes’ or vice versa then have a re-run. [I’m not proposing this by the way – just saying that this is more deomcratic! Obvious problems are if the decision is irreversible and the cost, also instability etc…. ]]

  30. The next opinion poll (if there is one between now and the vote!) should give a fairly reliable indication of whether ‘Yes’ or ‘No’ will carry the day. It will have been conducted at the point where individual decisions to go ‘yes’ or ‘no’ are crystallizing.

    Among other reasons, apart from the lack-lustre campaigning efforts of all the main political parties, Lisbon 1 was lost because whole swathes of the electorate – farmers, women voters and the moderate left – ‘deserted’ the ‘yes’ side in droves and voted against.

    This time it appears the farmers may be back on board, e.g. opinion polls in the Farmers’ Journal etc. The opinions of women voters are more difficult to judge. As was the case with the Nice Treaty, their voting intentions are more influenced by propaganda-induced fears about EU militarisation/ conscription of sons into an EU army or social issues like abortion and euthanasia. As for the moderate left, 54% of Labour supporters voted ‘no’ to Lisbon 1. Prof. Michael Marsh’s team analysis of the result of Lisbon 2 should tell a tale about what happens with their votes this time. Moreover, when Lisbon 1 took place, the full extent of our economic crash to come was not appreciated and most people still believed in the ‘soft landing’ theory. Circumstances have changed in the meantime.

    No matter how much ‘No’ campaigners try to distract from it, the economy will be the issue uppermost in people’s minds when they go to vote next week. As shown by the reasons people subsequently gave to pollsters as to why they voted ‘no’ the last time, the actual contents of the Lisbon Treaty had little to do with it. An appreciation of the finer details of the Lisbon Treaty will probably be just as important this time out, which is not at all. But this time, arguably,what nobody wants to do is risk a ‘no’ vote if it would lead to any further deterioration in our economy. It’s not a fear thing; it’s the application of common sense.

    The big ‘unknown’ is how important a factor hatred of the government will prove to be in influencing people’s voting choice. Neither the ‘yes’ nor ‘no’ campaigns have been particularly impressive this time around and the political class remain largely absent from the stage. Right now, I would expect it’s running about 60 – 40 in favour of a ‘yes’ result. If the simple and pragmatic economic arguments for voting ‘yes’, as set out in some of the comments on this thread, are more widely publicised in the final days of the campaign, that margin may widen even more.

  31. @Richard,
    The treaty transfers (joint) competence of only a handful of new and largely uncontroversial areas. In comparison to previous treaties, the new additions to the list of where the Eu has joint competence are minimal. In terms of transferring powers, what are the key transfers of powers that concern you most?

    I don’t believe the double majority can lead to enhanced gridlock. First, the bulk of decisions in the council are taken without recourse to voting. But second, the double majority in practise is similar to what went before. It is really only a minor adjustment. Under Nice 255 votes are required out of 345 where Germany has 29 and Ireland 7. So 73% of votes are required. If you look at the list of voting weights entirely this means you need, starting at Germany at the top, all votes down to Hungary, which means you need states with 411 million or 83% or the union population. So in essence you are moving from 73% / 83% down to 65% / 55%. There is no question but the bar is being lowered not raised in Lisbon.

    You said some people are saying Yes is better some are saying No. But in terms of MEPs, Commission, Member state governments, Business groups and most major unions, (along with representatives of American investment groups) the odds stack heavily in favour of yes. It is not merely that opinion is divided down the middle. You are dismissing too readily the extent of support for the treaty among very influential groups.

    To say that we can throw out Lisbon and come back in 10 years and rewrite the union’s architecture misses a couple of other important points. First, there is no appetite to re-open this whole debate – not among member governments, not among Eu officials. It has taken painstakingly long to get here. Inching this far took over a decade. And that was with the participation of a UK government that (at the time) was very much pro-European (early Blair). The next 10 years is likely to see a lot of conservative rule in the UK who will want, not to construct a new eu institutional architecture, but to merely dismantle much of what has been in place.

    Finally the Eu has evolved its balance between intergovernmentalism and supranationalism very delicately, with, at times, the big countries diverging over the strength of the commission or the centrality of the council. We are where we are after painful compromise on these issues. Throwing a ‘fresh’ framework on the table has practically zero chance of ever getting past the first meeting of council officials, not to mention getting onto the Leaders’ desks.

  32. *** What happened last time ? ***

    No material reaction on bond markets after the last No.
    I wouldn’t expect any significant impact after another No either. At least not at first.
    (asset swap spreads over Greece might rise a few basis points, but in the wider scheme of things, that’s peanuts).

    That said, Ireland has already paid a tribute in voting No last year.
    I would not able to quantify it. But it was real.

    I don’t think many investors would have dumped Irish government bonds on account of the No vote alone.
    The cost of borrowing did not of course jump dramatically on 13 June 2008.

    The far bigger tribute was paid some months later, coming on top of a number of other significant negatives. The banks crisis (and its mishandling), along with the prospects of persistently wide budget deficits over the coming years, was of course the major culprit for the severe cheapening of Irish bonds.

    However the spectre of the earlier No hung over investment decisions. I’m sure at the margin the No vote did play a role in helping cheapen Irish debt at that point.

    Some Irish debt today is still trading cheaper than that of single A Greece. That is a concrete tribute, if needed, to the dim view such investors have of the present government’s treatment of taxpayer interests.
    *** What would happen this time on the day ? ***

    The world, nor the economic outlook, will not fall apart the day after yet another No. I wouldn’t see any repeat of Denmark 1992 (it did feel as the bottom fell out of Europe 2 June 1992)

    So the issues for investors are very much long term in nature. e.g. will Ireland begin to live within its means… ? Can the Irish state afford the luxury of rescuing and protecting its local banks ? And will the Irish public be able to play within the rules of monetary union?

    Lisbon has no immediate or direct bearing on these long term questions. So a No on the day would not have any material impact.
    *** What could happen longer term? ***

    I’d be afraid however that a No vote could still be interpreted – at some stage – as an indication that Ireland is not ready for the sizable belt tightening that is still needed for eurozone membership.

    In the immediate instance, a No vote might be seen as a sign of government weakness. Investors appreciate competent and effective leadership from a government, with results. It does no help to go on collecting faux pas, one after another.

    Now the people who make decisions over such investments have – on the whole – a fairly sophisticated understanding of the circumstances of such a vote, I think. Another No vote would be water under the bridge ex post. This would be just one factor entering into the continuous reassessment that investors make on the potential for future Irish governments to stabilise the economy and finances in the years to come.

    The real risk is rather if we were to see another funding crisis. A second No vote – some months or years previously – would again (and at the margin) make investors less likely to entertain risk on Irish securities.

    Another NO would be seen as confirming Ireland as one of the more eurosceptic members of the eurozone. Investors will want to know what commitment there is by the public to eurozone membership. Not just commitment to the ideal…but to the necessary belt tightening.

  33. @Tomaltach
    The effect of changes in voting rules is not a matter of belief. It is a matter of analysis. If you look at the reports prepared by top game theorists for the Commission, you find that Lisbon will make it easier to block decisions.

    Lisbon is a constitutional treaty. Things should be decided on principle. It may be uncontroversial to transfer competence over tourism policy, and innocent at that, but it is wrong nonetheless. A consitution should be based on clarity of thought. Not muddled compromise.

    Similarly, Lisbon elevates certain aspects of environmental protection at the expense of others. This reflects current priorities, but sets them in stone. A future EU will be obliged to protect the climate (whatever that may mean) even if it is no longer threatened.

    And so on.

    That said, I think the economic consequences of the Lisbon referendum are minimal, regardless which way the vote goes, so we should not be debating this on Irish Economy.

  34. @Richard
    I hadn’t seen the games which the commission theorist had run. Are those reports available online? Or have you a name or reference?
    (I am not questioning your assertion – merely like to see for myself in more detail.)

    I think a muddled compromise is the only possible way the Eu could have and ever can evolve. This is not Philedelphia 1787. The Eu constitution has been built up over five decades and reflects various agreements between well established, sovereign states.

    A future Eu can ammend its policies if current priorities are changed. Yes, I accept that there is an element of inflexibility and inertia – but that is a feature of the current EU, not created by Lisbon. In fact, Lisbon makes an attempt to make this process more flexible (policy changes without full conventions) though understandably there was resistance to any mechanism that allowed radical changes (such as the transfer of new competence).

  35. To the extent that the Lisbon Treaty will affect investment decisions and more broadly framework conditions for economic activities it is very fine to discuss the economic consequences of the referendum here.

    The Lisbon Treaty will bring more clarity on who does what and there will be less confusion and uncertainty in the future about the distribution of powers between the Union and Member States. It will also strengthen the role of both the European Parliament and national parliaments in the decision-making process.

  36. The majority of risk mitigation for foreign holders of Irish Govvies will be currency risk and then default risk.

    Can’t see that Lisbon is going to affect these to much of a degree.

    You can make a “slippery slope” argument, but that is something else entirely and really doesn’t sustain Pramit’s claims.

  37. @Iulia

    “It will also strengthen the role of both the European Parliament and national parliaments in the decision-making process.”

    Could you define this further?
    Is this a legislative role?


  38. Last May Ray Kinsella wrote that the Spirit of Ireland wind energy initiative provided a robust platform for transforming Ireland’s medium-term economic performance.

    As robust as a sheet in the wind, apparently.

    The Ray Kinsella character, played by Kevin Costner in the 1989 movie Field of Dreams, hears a voice whisper, “if you build it, he will come,” as he walks through his cornfield.

    I would suggest that the real Ray Kinsella needs to get out of his ivory tower more often for some air at ground level.

    Even at a human level, where Ireland has had to tender the tin ponny for rescue from its self-inflicted wounds, how could he conclude a rejection of the LT would be good for Ireland?

    A small country with a governance system totally unfit for purpose and most of the members of its Parliament unable to address crucial issues such as the banking crisis, in a coherent manner, dictating to the rest of Europe, is beyond a joke.

  39. @ al

    For instance, the number of areas for which the codecision procedure are applied will be increased under Lisbon. This adds weight to the institution, even in the areas in which it already operates.

    In recent years, there is an increased awareness of the contribution the EP makes to the production of robust EU level laws.

    This is owning not only to fact that the institution is fundamentally democratic, but also because by its nature and modus operandi it is open and transparent in a way the other two institutions were never designed to be.

    For instance, in the area of financial reform, the EP has made a number of insightful and utterly approperiate amendments and improvements to a raft of directives in the wake of the de Larosiere report. The debates which surround these changes stimulate active engagement on the part of stakeholders (lobbyists) and the wider citizenry in these issues.

    That could never happen if EU law just went straight from the Commission to the Council.

    Admittedly, it is still in its infancy, and it is certainly not sexy, but maybe getting 27 countries to work together just isn’t ever going to be as interesting as a Lynx ad.

  40. @al

    Part Two: National Parliaments

    As you likely know, most EU laws require transposition into National Law in order for them to take effect. Lisbon formally recognises this by giving national parliaments a consultative role in the drafting of directives before the final Directive hits the OJ.

    This just makes sense. It’s like best practice for European public policy.

  41. Al,

    Graham has already clarified the point about the increased role of the European Parliamnet and national parliaments. Many thanks Graham for that. The extended co-decision means that the European Parliament will have a greater involvement in the legislative process. The European Parliament and the Council will have to agree on the text of the proposed law before it can become law. National parliaments will have the power to have a say on proposed legislation before this is considered in detail by the European Parliament and the Council of Ministers.

  42. @ Richard Tol

    “That said, I think the economic consequences of the Lisbon referendum are minimal, regardless which way the vote goes, so we should not be debating this on Irish Economy.”

    The impact wouldn’t be measurable but for a country so-dependent on FDI, a rejection would hardly serve the interests of Ireland.

    Perception and reputation does count and the impact of the crash is already evident there.

  43. @Michael Hennigan

    .. “The impact wouldn’t be measurable but for a country so-dependent on FDI, a rejection would hardly serve the interests of Ireland.”

    I’m intrigued that you have formed a view that

    – there will be any FDI available anywhere in the mid term, as, globally, debts exceeds money supply, or thereabouts.

    – that an unelected and unaccountable EU commission, newly granted emperor-like powers, including regulation of FDI, will know or care where ireland is and what happens there

    – that areas of greater political importance to the Commission will somehow not get FDI that passes under the Commissions’ nose

    .. And that we would not, as a nation, be better off selling our ‘yes’ vote for something more interesting than the right to indebt ourselves up to the oxters for seven generations.

  44. @ Graham and Iulia

    Thanking you for the clarity.

    So, in the interests of kick starting the economy…
    Would anyone like to buy a vote???

    Only joking!????


  45. The economic impact of Lisbon is hugely complex and unpredictable in comparison to Nama. So economists who feel free to give their views on Lisbon should have no hesitation in speaking on the much clearer issue of Nama. Indeed, they have an obligation to society not to keep silent.

  46. @ Richard
    I agree with your views above.
    I think that this treaty might be viewed by history as crude foreplay before the real action of setting up a federal structure with ‘government’ bound by a constitution. If we re going down the integration route then a constitution is in the interest of the whole.
    But it may still be in the national interest, at this time!, to vote yes.

    @ Tomaltach
    I disagree. This ship will drift from treaty port to treaty port, long past the point where an EU constitution would have served as a safe harbour.
    1787 had a congress with records, and a pro and anti record with the Federalist and Anti Federalist papers.

    What we have had so far was a what????

    One thing about the 1st attempt was its valorisation of our historical ‘forms’ of power, as if history had a soverignty.

    We need the discipline and openess of a founding, but with a freshness and spark of creativity.
    I fear the weight of history will defeat the whole project!


  47. There are many comments here that would lead one to believe that we have a very good grasp Ireland’s place in the world and within the EU in particular. After rattling around the world in well paid jobs for a few decades and sounding out foreigners on the Irish question I probably have a perspective that I would not have if I had stayed within drinking distance of the parish pump. German economists working for German and Swiss banks were well informed as to how things worked in Ireland. In a nutshell they applauded Ireland for using the methods we used particularly the emphasis on education and low corporate taxes. They were of the opinion that Ireland could continue on that track unopposed for decades because of its size. The risk they saw was that countries such as Poland would adopt similar policies which would spread to a half a dozen countries or so and would be a threat (corporate taxes) to the EU collectively. Of course by the time it affected the large countries Ireland would have lost its competitive edge. They also saw clearly what was happening in the housing market, one of them showed me maps (jobs, income etc) of the coast of Connemara where an Irish friend of his was building a 400 sq. metre mansion overlooking the Atlantic. He told me he did not see a market for a house that size in that location and was sure he was missing some vital piece of information that would make economic sense of what he perceived to be folly. I agreed with him that things were beyond belief in the housing market, this was around 2005. The interest in Ireland was largely academic as these people managed projects all around the world and were interested in what worked and why it worked. Similarly in France we were not a threat and could toodle along our merry way unopposed. In South America particularly in Argentina and Chile we are looked upon favourably as some of our forebears are on big horses on big monuments in central squares. In a contrast and compare mode the world sees Ireland as a country that has conducted a very successful economic experiment and was successful because it was not big enough to create troublesome waves. We are a rowboat in a world of supertankers and get our economic legitimacy from the lifelines we have attached to the supertankers. A phrase that came up occasionally was that Ireland was a US aircraft carrier moored off Western Europe and Israel was its equivalent in the Eastern Mediterranean. Amongst my acquaintances there is no one that believes that the Irish are capable of soiling their own nest. My opinion is that twenty years of prosperity has bred arrogance and a sense of entitlement that is decidedly unhealthy.

  48. @Al
    I’m not sure that I agree with the “if” in your “if we are going down the federation route”. In many ways, the EU has all the characteristics of a federal state. In many other ways, it does not. Lisbon solidifies this ambiguity.

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