Posts Tagged ‘euro crisis’

A Yes or No Referendum on Euro Membership?

By Karl Whelan

Wednesday, December 14th, 2011

I wrote this post last night for the IIEA blog. I concluded it by discussing what I view as the likely upcoming referendum

Quoting myself(!):

It will be very important that other Eurozone member states be careful when discussing the problems faced by countries such as Ireland, for whom ratification of a new treaty will be politically complex.

For all the temptation to present such an agreement as a “yes or no” moment on euro membership (a temptation last seen with Mrs. Merkel’s “ya oder nein” moment) the truth is that there is no clearly defined way to expel a country from the single currency. Beyond the potential of a bullying approach back-firing with the Irish public, a focus on a referendum as a decision about euro membership risks triggering a massive bank run as depositors take flight to avoid the redenomination that is being threatened.

Needless to say, what happens today? Our own Minister for Finance comes out with the following:

FINANCE Minister Michael said today that any referendum here on the new EU deal would essentially be a vote on the country’s continued membership of the eurozone.

“It really comes down on this occasion to a very simple issue, do you want to continue in the euro or not,” Mr Noonan said in an interview with Bloomberg Television.

“Faced with that question, I think the Irish people will pass such a referendum.”

I think this is a very poor way for the government to approach this issue and I would hope they reconsider it.

The Irish public have a history of responding poorly to threats as a motivation for voting for EU treaties. And if Mr. Noonan is keen on triggering another disastrous bank run (this time also involving retail depositors) then he should keep talking this way and linking the probability of Ireland being in the euro with the latest polls on how likely the referendum is to pass.

The truth is that, whether people like it or not, the debate about this referendum will have many parallels with the Lisbon Treaty debate. It wasn’t true that voting no on Lisbon meant leaving the EU. But it was true that the rest of the EU could have decided to form some new agreement, something which would have required a complex legal and political process.

Similarly, there is simply is no expulsion route from the euro. If Ireland voted down the new intergovernmental treaty but the government wished us to stay in the euro, then there is nothing that could be done to eject Ireland from what is legally a fixed and irrevocable currency union.

It is possible for other countries to move on after an Irish No vote to set up their own currency union. However, this would require them to leave the euro, which would very likely involve them leaving the EU. Legally and economically, such an approach would be hugely difficult for the EU, certainly more difficult than going on to apply the Lisbon changes to some inner core EU.

So a “No” vote would likely leave the EU with a legal and political mess similar to that which occurred after the failure of the Lisbon vote in Ireland in 2008. From the point of view of the core EU countries, this is all very undesirable. They hardly want to admit that any country that doesn’t like the proposed treaty should go around asking for changes on an a la carte basis. If this were the case, then there probably would be no treaty at all (no bad thing, some might say).

But that’s where things stand and it wasn’t a situation schemed up by Irish politicians.

Government ministers should say there is simply no question of Ireland leaving the euro and that’s the end of it. Then they should enter treaty negotiations reminding everyone in Europe of the terrible nuisance that is their constitution and of the huge decline in the popularity of the EU in Ireland since Lisbon and Nice were voted down.

While I don’t necessarily want to endorse Fintan O’Toole’s language about causing trouble, the legal situation is what it is and the government need to make the most of a bad situation. (This issue was also discussed on Monday’s edition of The Frontline).

It’s time to argue for a better treaty and a better deal on the IBRC debt.

It’s not time to bully the public about signing up to whatever is put in front of them or face being booted out of the euro.

Statement by Euro Area Heads of State: December 9

By Karl Whelan

Friday, December 9th, 2011

Here’s the statement by the Euro Area Heads of State.

Reading List

By Philip Lane

Friday, December 17th, 2010

Today’s FT carries op-eds by Lorenzo Bini-Smaghi on the costs of sovereign default (here) and by Klaus Regling on the feasibility of monetary union without fiscal union (here).

This week’s Economist compares Iceland and Ireland here.

Martin Wolf on the Greek Rescue Package

By Philip Lane

Tuesday, May 4th, 2010

Martin Wolf offers his perspective in this FT article.