Unsuccessful Irish Referendum Would Prevent A Future ESM-Funded Bailout

While the now scheduled Irish referendum on the fiscal treaty, which will likely not pass successfully absent major concessions on behalf of Europe, will not precipitate a failure of the recently agree upon compact, as 12 out of the 17 contracting parties need to support the Eurozone, it will have an impact in that it would impact future bailouts of Ireland courtesy of preset European bailout mechanisms. In other words, should things take a turn for the worse, and they will, in the near future, Ireland will have to rely on itself to save itself. As a reminder, it took Europe 2 years to (supposedly) firewall itself from default and a collapse of its banks. How long will the same take for Ireland, because while the country may be standalone, its banks most certainly will not be. Remember that money is fungible. So are massive unrecognized Mark to Market losses. Morgan Stanley explains.

The Irish Prime Minister Enda Kenny just announced that his country will hold a referendum on the fiscal compact that 25 EU member states had agreed on last month. This decision was taken after the Prime Minister had sought advice from his state's lawyer on whether a vote was necessary. The arrangements for the referendum will be finalized in the coming weeks.


For the fiscal compact, the intergovernmental treaty between the member states on fiscal discipline, to come into force however, the Irish signature is unlikely to be a deal breaker, since the support of 12 contracting parties from the euro area will be sufficient. The Irish referendum will be another crucial risk event to follow, especially since an approval of the fiscal compact is one of the conditions to receive new aid from the ESM (which enters into force in July 2012), should Ireland require an additional programmme in the future.