Irish vote to wield big say over euro growth debate

(BRUSSELS) - It may be one of the eurozone's smallest members, but Thursday's referendum in Ireland on a treaty calling for balanced budgets will have a major impact on the growth versus austerity debate.

The European Union has spent many months crafting the German-inspired "Treaty for Stability, Co-ordination and Governance," but its austerity prescription for the debt crisis has been overtaken lately by a French-led push for governments to invest for growth.

Too much austerity is blamed for killing nascent revival; but the most disciplined economies led by Germany maintain this is not the time to roll out massive public spending which they say will exacerbate the debt burden.

"If Ireland votes 'yes,' that will mean a big morale boost for (German Chancellor Angela) Merkel after a series of political setbacks," said Hugo Brady of the London-based Centre for European Reform.

By the same token, he believes that a 'no' vote would likely hasten French President Francois Hollande's drive towards public investment to fight unemployment and boost business confidence.

After initially calling for the treaty's renegotiation, French President Francois Hollande has since settled for a parallel growth pact to be agreed at a June 28-29 summit.

Jean-Dominique Giuliani of Brussels-based Robert Schuman Foundation said that "the current Franco-German tensions demonstrate how far the two partners have diverged over these past few years".

He said the two key governments now need to "discuss more widely their economic, budgetary, energy, environmental, diplomatic and defence differences, rather than remain camped on their own positions."

If the polls are right, the 'yes' camp has a winning margin among Ireland's 3.1 million voters.

In any case, the treaty is designed with built-in shock absorbers, so as to remove the risk of one country torpedoing it: a minimum of 12 of 25 signatories ratifying is all that is required to enter force.

A "yes" outcome would be in tune with a shift among Greek voters towards backing their latest round of austerity cuts, agreed in March in exchange for a fresh 237-billion-euro EU and IMF bailout.

The package was roundly slammed in a first election that punished those parties that negotiated the deal, but another vote on June 17 is starting to look a bit less dramatic.

If indeed Ireland does pass the treaty, it will be because the idea that the country could be shorn of Germany's protection is simply too much to bear.

After calling in bailout aid alongside Greece and Portugal, the Irish debate has largely centred on whether Dublin can afford the risk of future exclusion from the European Stability Mechanism (ESM).

The link between ESM access and treaty ratification was a late decision by EU leaders.

Prime Minister Enda Kenny has warned that Ireland's sovereign debt could be downgraded by rating agencies if the country votes no.

Ratification in Ireland -- the only one of 25 signatory countries to put it to a popular vote -- would represent another difficult hurdle passed in eurozone leaders' painstaking bid to carve out deeper integration across the currency bloc.

Brady reckons Ireland will need another 12 billion euros of public loans in 2014, with money markets likely to place a still-too-high risk premium on state borrowing needs amid probable low growth for the medium term.

The EU then is Dublin's only hope in the short term, and successive polls showing 60 percent of those certain to vote giving their backing suggest they know it.

Rejection of the treaty "would hardly leave the country well-placed to extract concessions from eurozone partners," Brady said.

Yves Bertoncini of Paris-based think tank Notre Europe (Our Europe) stressed that a "no" vote would not prevent Ireland from accessing the rest of its 67.5-billion-euro rescue package, which runs through to the end of 2013.

The Irish have twice rejected European Union treaties in referendums in 2001 and 2008 -- although both "no" votes were then overturned in repeat polls.

And Brussels veterans maintain that the "golden rule" this treaty is to bring in -- alongside fines for repeat offendors -- cannot be stopped.

An EU ambassador summed up the view thus: "If Ireland votes against the treaty, we do have a history of asking the Irish people if that's what they meant."