Fears of treaty magnifying austerity are all imaginary

In other words, a No vote will effectively lock Ireland out of the ESM’s €0.7 trillion default insurance policy, unless and until reversed. Ironically, this will come at a time when Ireland faces a debt cliff of more than €36 billion in 2014-2015 of deficit-bridging and debt-rollover obligations.

Whether Ireland could obtain alternative funding for these obligations is uncertain. Even if we did, just as uncertain would be answers to crucial questions such as whether the amount, terms and interest rate of any imaginable alternative funding would match those of the ESM.

Such future uncertainty will itself have short-term consequences. Predictable consequences of a No vote are: (a) Ireland’s credit rating will likely be downgraded by agencies such as Fitch and Standard Poor’s, prompting a further withdrawal of investors from Irish sovereign debt; (b) linked to this, Irish bond yields – the cost to the State of borrowing money – will go up and remain up; (c) with bond markets effectively excluding us, Ireland’s prospects of avoiding a second bailout will dwindle to being impossible; (d) within the EU, Ireland will move from being the success story the euro zone has an interest in helping, into being regarded – like Greece – as a difficult, unpredictable and ultimately less interesting partner for other member states to continue assisting; and (e) Ireland will have to accept whatever other negative consequences derive from investor uncertainty – particularly as the 2014 funding cliff approaches.

These are only the short-term consequences of a No. The medium-term consequences come in 2014, when Ireland trundles towards an initial €19 billion funding cliff, having blocked its own access to the lender of last resort that is the ESM.

The worst-case scenario is that, bereft of funding, Ireland will then default. In this regard, it should not be forgotten that the member states have gone to the trouble of reopening two separate treaties to underline their lack of interest in providing a new bailout programme to states that fail to ratify the fiscal treaty.

If, out of self-interest, they nonetheless intervene in some shape or form, the terms on which they do so will be entirely uncertain. They could be penal, and – ironically – involve austerity on a scale as yet unseen in Ireland. Why Ireland should put itself in such an unenviable position (to avoid the application of a treaty whose substantive rules already apply) is something the No side has failed to explain.