Irish ‘Yes’ Vote Assures Continued Support; Euro Zone Crisis Still Weighs

By | June 5, 2012

Ireland held a referendum on Thursday, May 31 – a straight yes or no vote on whether the country would write the “Stability Treaty,” the austerity measures agreed to last fall by the 17 euro zone countries, into law. It passed 60.9 to 39.1 percent, despite a vigorous campaign by those opposed to its adoption. Every city, town and village was blanketed with pro and con messages.

Irish voters didn’t agree to adopt the Treaty because they love austerity, which has meant new taxes and cutbacks in services. They supported it as the price for continuing to receive aid from the European Union and the European Central Bank to continue its economic recovery and the bail out of the country’s banks. ‘Yes’ proponents, and most analysts, warned that rejecting the Treaty would make matters worse, as it would imperil the financial aid the country desperately needs

Ireland’s Public Expenditure and Reform Minister, Brendan Howlin, painted a somewhat positive picture in his keynote speech at the European Insurance Forum in Dublin May 24-25. He noted that after a 16 percent economic retraction, Irish exports were up four percent in 2011. The country’s banks “deleveraged” €46 billion ($57.5 billion at current rates – more last year); deposits are up and estimates of the banks’ continuing liabilities are down to the extent that “stability is returning.” A ‘No’ vote “would end that,” Howlin said, as a “stable euro is necessary to build confidence.”

It’s also vital to rescue the economy. Although numbers, statistics and percentages are the lifeblood for economists, bankers, actuaries and forecasters, they too often obscure simpler realities. The once vibrant “Celtic Tiger” is on life support. Where once construction cranes sprouted like mushrooms, they’re now an extinct species. Half constructed houses and buildings lie empty, their promoters bankrupt and the banks holding the bag. Walk down the High Street in Dun Laoghaire and you’ll find seven boarded up shops for rent or sale – in one block! Yes, Ireland needs the Stability Treaty to recover, but the decision was a hard one.

Unfortunately Ireland hasn’t had too many pleasant experiences with treaties in the past – notably the Treaty of Limerick with England in 1691, which was soon broken. Having suffered 700 years of strife, conquest and servitude, Irish independence (which excluded the 6 counties of Ulster), was finally achieved in 1921. It is highly valued. Howlin admitted that the terms of the stability treaty to some degree “compromised” Irish independence, but, given the exigencies of the globalized economy, the gains were worth the loss.

He explained that supporting the treaty would give Ireland time to implement the reforms it’s already undertaken, and to find new solutions by “thinking outside the box.” Ireland’s re/insurance companies are central to that strategy. While Ireland may be physically an island, it is indelibly linked to Europe and to the euro. Further instability – which is a distinct possibility – would fall most heavily on the countries with the weakest economies.

Howlin described Ireland as “well positioned,” which it certainly is compared to Greece, but that position is very fragile, and maintaining the drivers of the economic recovery, led by the re/insurance industry, tech companies and pharmaceutical firms, is vital, if Ireland is to get the investment it needs to rebuild its economy.

Even then, it might not be enough, as the country would be severely impacted by events in the euro zone that are beyond its control. A Greek debt default and/or its exit from the euro zone, or a collapse of Spanish banks, accompanied by a deepened economic crisis, are the immediate concerns. But Europe’s inability to come up with a workable plan to combat the now well entrenched recession is the overriding long term concern. If it doesn’t, a worldwide recession would be the likely result.

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