‘Let’s be practical,’ the Irish have been forced to think in casting their referendum votes for or against tighter new European Union fiscal rules. They are already in a pressure cooker of austerity. They are already on the international financial aid dripfeed.
Here is some background to their ‘choice’:
In 2010, by a six-vote margin, the Irish parliament approved the conditions attached to anti-bankruptcy loans from the EU and the IMF, facing a horrendous deficit. The country was spending almost a third more than it was earning.
It was offered 85 billion euros to tide it over until 2013, when the money is projected to have been used up. But even then it will be spread thin, and is expected to need to borrow another 12 billion euros to get it through the year after.
It is supposed to get that on the financial markets, but it is not sure it will be well enough. Lenders braving the risk may demand rates it is still too weak to pay. And other eurozone countries’ vulnerabilities are virtually cooking interest rates over a slow fire.
Public debt could ignite to 120 percent next year, and, according to the International Monetary Fund, mount to 138 percent in 2016 unless growth picks up to quench the flames.
The latest report from the Organisation for Economic Co-operation and Development gives a dim view of the Irish growth forecast, with exports to other eurozone states stagnating this year and unemployment seemingly stuck at more than 14 percent.
Maybe there is hope. The IMF figures that next year Ireland will post two percent growth. It is not in recession, but GDP, national productivity, has regressed from last year’s 0.7 percent.
So, bringing its current deficit from more than 13 percent – it was the highest of any in the eurozone at the end of last year – down to three percent of GDP by 2015 puts Ireland on a tightrope.
This fine line seems to lead straight for the eurozone countries’ 700 billion euro rescue funding programme, the European Stability Mechanism.
The catch is: to have access to the money a country must accept the fiscal policy guidelines.
That is what the referendum has been on.
Under the so-called ‘golden rule’, governments are obliged to prevent a country’s structural deficit – that is when a budget deficit persists for some time – from going more than half a percent over its income, on pain of more or less automatic fines.