Ireland to hold referendum on European fiscal pact


DUBLIN (AP) — Ireland's citizens will vote on the European Union's new fiscal treaty, Prime Minister Enda Kenny announced Tuesday in a major test for plans to impose tougher budget discipline on the 17-nation eurozone.

Kenny said he would sign the treaty Friday at a Brussels summit but noted that Ireland's constitution requires the public to ratify the treaty in a referendum. The outcome is uncertain — Ireland has voted down two previous European treaties, delaying their ultimate ratification.

Ireland's government will quickly draft the yes-or-no question to be put to the people "in the coming weeks," Kenny said. He specified no date for the vote.

"I am very confident that, when the importance and merits of this treaty are communicated to the Irish people, they will endorse it emphatically by voting 'yes' to continued economic stability and recovery," Kenny told lawmakers in Dail Eireann, the parliament.

The fiscal treaty agreed last month by 25 of the 27 EU countries proposes tough new deficit and debt limits for eurozone members in hopes of preventing future financial crises. The only holdouts, the United Kingdom and Czech Republic, are not euro members.

The treaty would normally require ratifying members to keep their deficits within 0.5 percent of gross domestic product. But it offers basic exceptions, such as a severe recession or an existing bailout agreement.

Ireland's 2010 bailout terms require the government to reduce its deficit to 3 percent of GDP by 2016, so Ireland wouldn't be expected to reach the 0.5 percent target until 2017 at the earliest. It ran a 2011 deficit of 10 percent, better than expected, while its bailout target for 2012 is 8.6 percent.

While the 0.5 percent rule is of no immediate concern to Ireland, the fiscal treaty also emphasizes that any members who fail to ratify the pact by March 2013 will be blocked from receiving funds from the eurozone's future euro500 billion ($670 billion) European Stability Mechanism.

This means that if the Irish vote to reject the treaty, Ireland could be barred from receiving more EU loans once its current bailout funds run dry by the end of 2013.

In 2010, Ireland was forced out of bond markets as its borrowing costs soared and negotiated a euro67.5 billion ($90 billion) bailout from the EU and International Monetary Fund.

While the bailout is meant to keep it funded until late 2013, many economists expect Dublin will require a new round of EU-IMF loans next year.

"In this referendum, the Irish people can confirm our commitment to responsible budgeting and, in doing so, ensure that the reckless economic mismanagement that drove our country to the brink of bankruptcy will not be repeated by any future government," Kenny said.

Opposition leaders welcomed the government's decision as a chance to undermine what they consider European efforts to seize control of Ireland's spending and taxation policies.

Gerry Adams, leader of the Irish nationalist Sinn Fein party, vowed to lead a strong anti-treaty campaign to stop a pact he said would strengthen the Irish government's "terrible policy of austerity."

And Shane Ross, an independent lawmaker and investment guru also critical of Ireland's bailout terms, argued that rejection of the treaty was the only way to stop a process that would end in Ireland's surrender of economic decision-making. He noted Franco-German hopes of forcing Ireland to raise its 12.5 percent rate of corporate tax, a key magnet for investment by 600 U.S. companies in Ireland.

Ross called the treaty "a forerunner of further fiscal union down the road" that, if ratified, would set the stage for "greater sacrifices of our independence."

Ireland has been the only EU member bound by its 1937 constitution to subject each EU treaty to a nationwide vote.

The policy twice has caused major headaches for the EU as Irish voters temporarily blocked the union's two previous treaties with narrow "no" votes in 2001 and 2008. Ireland on both occasions staged second referendums in 2002 and 2009 that overcame anti-EU sentiment.

This time EU leaders, foreseeing the risk of an Irish referendum defeat, agreed to make the treaty legally binding once 12 of the eurozone's 17 members ratify it. That way, if a majority of Ireland's voters reject it, other eurozone countries still can adopt it for themselves.

Ireland's adherence over the past year to an EU-IMF austerity plan has helped boost the value of Irish bonds, raising hopes of an Irish return to normal borrowing in 2013. But the sheer volume of funds required to finance Ireland's deficits and bank-rescue program leaves open the prospect of a second Irish bailout next year.

A spokeswoman for Herman Van Rompuy, the president of the European Council who oversaw the drafting of the fiscal treaty, declined to comment on Ireland's referendum plans.


Gabriele Steinhauser in Brussels contributed to this report.