Feb. 28 (Bloomberg) -- Ireland will hold a referendum to ratify the European fiscal compact, Prime Minister Enda Kenny said today.
Kenny, speaking in the Dublin parliament, said that the government decided to hold a vote after receiving legal advice from the state’s attorney general. In contrast to two previous Irish referendums in European policies, a veto wouldn’t sink the treaty, which requires support from just 12 of the 17 euro countries to take effect.
The vote “will give the Irish people the opportunity to reaffirm Ireland’s commitment to membership of the euro,” Kenny said.
The euro weakened to as low as $1.3389 against the dollar after the announcement, before recovering to trade at $1.3416. The government will finalize arrangements for the vote in coming weeks, he said.
Ireland has to hold a referendum should a treaty change the country’s existing constitution. Irish voters rejected changes to the European treaty in 2001 and 2008, before reruns passed the proposals. In December, Finance Minister Michael Noonan said a vote on the treaty would effectively be a vote on Ireland’s membership of the euro.
“While I can understand the government wanting to put this to the electorate, it is a very risky strategy for Ireland Inc.,” said Alan McQuaid, an economist at Bloxham Stockbrokers in Dublin. “It’s been made quite clear by the ratings agencies that if we vote no, we’ll be downgraded, meaning our chances of getting back into the market would be slim.”
A poll by research company Red C in January showed that 72 percent of Irish favor a referendum on the compact, with 52.6 percent of those who expressed a preference saying they would vote yes. The poll of 1,008 adults was carried out for the Sunday Business Post between Jan. 23 and Jan. 25.
Ireland’s October 2020 bonds, regarded as the benchmark, yield 6.87 percent, down from a euro-era high of 13.8 percent on July 18, as the government reassured investors that they would be repaid, in contrast to the losses imposed on Greek bondholders.
While Ireland alone can’t derail the treaty, a veto would deprive it of possible future aid once the euro area’s permanent rescue fund goes into operation.
“I’m surprised. I thought the treaty was framed in a way to avoid Ireland going down the referendum route,” said Dermot O’Leary, chief economist at Dublin-based Goodbody Stockbrokers. “The latest polls suggest that it will be passed.”
--Editors: James Hertling, Leon Mangasarian
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