Irish say yes to EU pact, now seek EU growth deal

June 01, 2012

DUBLIN (AP) — Ireland's voters have agreed to ratify the European Union's deficit-fighting treaty with a resounding 60.3 percent "yes," results Friday showed, but government leaders and pro-treaty campaigners alike expressed relief rather than joy because of the stark economic challenges ahead.

The treaty's approval, after weeks of nervousness in Dublin and Brussels, relieves some pressure on EU financial chiefs as they battle to contain the eurozone's debt crisis. But critics said the tougher deficit rules would do nothing to stimulate desperately needed growth in bailed-out Ireland, Portugal and Greece, nor stop Spain or Italy from requiring aid too.

Prime Minister Enda Kenny agreed, stressing in his stern-faced victory speech that the Irish voters' verdict would strengthen his hand as he seeks, with many other European nations, to shift Germany's opposition to boosting growth through government spending.

"I have consistently argued that budget rules alone will not be enough to overcome the economic crisis that faces Europe. They must go hand in hand with a real and concrete growth program for Europe," Kenny said in a nationally televised press conference on the steps of his central Dublin office.

Kenny said EU and European Central Bank chiefs must agree on a European-wide new system for managing the toxic banking debts that brought Ireland to the edge of bankruptcy in 2010 and now threaten to do the same to Spain. Ireland long has pressed EU partners, particularly Germany, in vain to permit write-downs of Irish banking debts that could ultimately cost Irish taxpayers €68 billion ($85 billion) and have already given Ireland the worst deficits in Europe.

Kenny spoke by telephone with German Chancellor Angela Merkel, Europe's leading champion of austerity. In a statement afterward Merkel welcomed Ireland's willingness to vote yes to more cuts as an outcome that "deserves particular recognition and respect."

And Merkel mirrored the language, if not the detail, of Kenny's call for new growth initiatives. She said debt and deficit reduction across the 17-nation eurozone "must go hand in hand with the strengthening of forces for growth and competitiveness." She didn't elaborate, but in recent comments has stressed that those forces needed to be boosting efficiency and competition, not funding state investment through increased debt.

German Foreign Minister Guido Westerwelle said all EU nations should follow Ireland's example and speedily ratify the treaty, which 25 nations signed in February and which is supposed to come into force by early 2013. Ireland is the only signatory that required public approval before its ratification; the rest require support only from their own parliaments and heads of state.

"The fiscal compact stands for long-term financial policy good sense. If all of Europe decisively commits itself to this course, we will be rewarded with new confidence," Westerwelle said. The result of Thursday's referendum represented a surprisingly strong victory for Kenny, who courted unpopularity by insisting that Ireland — already four years into a brutal austerity program that has slashed 15 percent from many workers' incomes — had no choice but to vote in support of yet more cuts and tax hikes.

And when the official result was announced in Dublin Castle, victorious campaign officials engaged in few of the cheers, shouts and hugs normally associated with the occasion. "There was nobody from the 'yes' camp jumping up and down," observed Gerry Adams, leader of the Irish nationalist Sinn Fein party, which campaigned against the deal. "While people voted yes, they did so through gritted teeth."

Government ministers emphasized that voters' anxiety about the parlous state of the economy — with unemployment stuck on 14.3 percent and hundreds of thousands of households trapped in negative equity — did shadow their every step on the campaign trail.

"The astonishing thing about this campaign was that lots of people voted yes with a heavy heart, and many voted no with a heavy heart. Both sides were really concerned about growth and employment," said Ireland's minister for social protection, Joan Burton, who has overseen cuts in many welfare payments.

Overall, about half of Ireland's 3.13 million registered voters participated in Thursday's referendum, a typical turnout in an officially neutral country that is constitutionally required to hold a referendum on each European treaty.

Public rejection could have blocked Ireland from receiving new EU loans once its 2010 bailout money runs out next year. It also would have sent political shockwaves through other eurozone members, where anger against austerity and bank bailouts runs similarly high but citizens are denied the chance to vote on the treaty.

During the campaign, Kenny warned that rejection would mean even worse austerity measures in 2013, because Ireland would suffer more credit downgrades and lose its key EU source of funding. The treaty proposes that all members who ratify it should reduce their annual deficits to no more than 0.5 percent of gross domestic product. The current eurozone limit is 3 percent of GDP. Ireland is aiming this year for an 8.6 percent deficit and hopes to be back down to 3 percent only by 2015.

Opponents of the treaty argued that the new 0.5 percent deficit limit would force Ireland to keep sucking money out of the economy until perhaps 2020. The government countered that much would depend on whether Ireland's GDP could keep growing against that tide of austerity.

Ireland, unlike much of Europe, has recorded a faint pulse of growth over the past year thanks to strong exports by nearly 1,000 foreign high-tech companies based in Ireland. But the domestic economy — with consumers reducing their own debts and salting away savings after a decade of Celtic Tiger extravagance — has shrunk for four straight years and shows no sign of rebounding.

Ireland has posted the EU's worst deficits since 2009, including an EU-record 32.4 percent in 2010 and 13.1 percent last year. Both figures were greatly inflated by the exceptional costs of Ireland's decision to nationalize five of its six banks rather than let any collapse. That debt burden overwhelmed Ireland's national finances and pushed the nation into the bailout zone in 2010. Ireland's expected repayments to international bondholders and central banks, plus decades of related interest charges, represent €19,000 ($23,500) for every man, woman and child in this nation of 4.5 million.

Associated Press writer Geir Moulson in Berlin contributed to this report.