It’s probably true that there is no such thing as a hard way and an easy way out of Ireland’s dilemma, but there’s no shortage of denial to go around… Expect there to be some good for the No camp in the Red C poll coming up this weekend…
But in his business column in the Irish Times today, Dan O’Brien characterises some of what’s driving the No campaign as something akin to the denial over the housing bubble in Dublin five years ago… He begins by citing Richard Curran’s Futureshock programme for RTE at the time… And then extrapolates from there…
Many of those who want Irish voters to reject the European fiscal treaty at referendum are behaving just as Curran’s critics did five years ago. They label as scaremongers those who warn of negative consequence if the treaty is rejected and claim that Ireland is invulnerable to any ill-effects of a No vote.
It is astounding, after everything that has happened, that people can be as blithe about the risks facing everyone in this State.
The biggest foreseeable risks are: a break-up of the single currency; the ejection of Ireland from that currency union; a collapse of the Irish banking system; a Greek-style sovereign default (while remaining in the euro); and a much bigger fiscal adjustment owing to a lack of additional bailout funds. A rejection of the treaty will increase the probability of all of these things happening to varying degrees.
He goes on to enumerate the risks:
A rejection of the treaty by Ireland would certainly not break the euro overnight, but it would lessen the chances of the currency holding together.
The second-biggest risk is ejection from the euro. If Ireland becomes part of the problem rather than part of the solution, the probability of being pushed out can only rise. Rejection of the fiscal treaty would be problematic, as outlined above.
Under what circumstances could Ireland be ejected? The answer: at the same time as Greece. Thus far, the most compelling reason for not cutting Greece loose has been the risk that any unpicking of the single currency would start an uncontrolled unravelling.
A possible solution is to shrink the euro zone in one go, removing all the weaker links at the same time. If Ireland were to become politically problematic by rejecting the treaty, having been economically problematic for some time, the case for ditching it along with Greece would be much stronger.
The third risk is a collapse of the banking system. It is closely correlated with the second risk. The greater the probability of a new currency being launched in Ireland, the greater the flight of capital out of the State. If capital flight were to be sufficiently great, the banking system would collapse.
The fourth risk – sovereign default – would likely be least affected directly by a rejection, as there is a shared collective interest in avoiding another such default after the multiple knock-on effects of Greece’s debt writedown.
Most of these are unquantifiable, and will no doubt be contested. Some critics of the government, particularly in Fianna Fail privately that say the government should have delayed a referendum until the autumn…
That way a number of externalities (primarily the French and Greek elections, perhaps even a ring side seat at what a small country defaulting looks like) would have had time to play through, and it would be harder for the No side to argue there was time to re-negotiate.
He concludes with another observation, i.e. a full and realtime exploration of Ireland’s position in Europe could very well function with the same effect as Douglas Adams’ fictional the Total Perspective Vortex…
…[it] does not mean that a rejection of the treaty would not increase the fifth risk – of greater austerity. A rejection would reduce the chances of escaping the current three-year bailout while at the same time lowering the chances of an extension of official funding along current lines.
Following a No vote, it is very unlikely that creditor countries would go out of their way to reward such rejection by setting up new mechanisms tailored just for Ireland. A treaty rejection would make the terms of any new bailout more onerous.
Or perhaps they will just tell us what we knew all the time… that “we’re really great guys…?”