Ireland Reluctant, Votes for Austerity

Dublin. In a mild rebuke of the last Greek election voters in Ireland have voted in a referendum to ratify the European Fiscal Compact, and of the 50% of the electorate that voted, 60.3% voted for ratification. The treaty which was billed the “Austerity Treaty” by opposition parties headed by Sinn Fein, calls for increasing fiscal policy oversight by the European commission, essentially ceding some individual member states sovereignty over to Brussels. The Fiscal Compact would come into effect on January 1st 2013, at which time signatories would be required under the European Court of Justice to achieve no more than a 0.5% of GDP budget deficit, attain over time a 60% debt to GDP ratio, and they would be eligible to access funds from the European Stability Mechanism.

The short term implications of the treaty are that ratifying nations must return to a semblance of budgetary balance within a prescribed set of time (depending on the individual nations economic conjecture). Ireland would thus have to continue along the path of austerity. With austerity measures already ranging from public servant lay offs, salary cuts and speculation that pensions and free university education are next, austerity is a foul word on the emerald isle. In the Greek legislative election voters soundly rejected austerity, likewise the French voted in Francois Hollande president on anti austerity ticket. The Irish however, albeight timidly, bucked the trend and refrained from rejecting austerity.

For this, the Irish people deserve respect. Although it would be easy to boil down the vote to people properly assessing the far greater cost of rejection, it is still impressive to see a People voluntarily bite the bullet of austerity.

Greece and Ireland however are not the same, like apples and oranges the similarities end quickly. While Greece is the epitome of uncompetitiveness, Ireland as many of the assets necessary to rebound from its current state. Ireland thanks to an accommodative  tax structure and quality higher education, already has a developed external secteur, as well as a sophisticated workforce. Furthermore the Irish economy is much less dependent on government spending than its other PIIGS counterparts, so budgetary austerity may bite less out of GDP in the medium term.

Unfortunately given the twin problems of huge budget deficit and debt load in Ireland, expectations should be revised to see more austerity. The Irish’s tolerance for austerity will continually be tested while the country works through its property price bust and high unemployment, let’s hope they can continue to show the resilience to austerity that the Irish have exemplified throughout their history.