Huge challenge for Kenny as voters could retaliate at referendum

Thu, Apr 5, 2012, 01:00

EUROPEAN DIARY:TAOISEACH ENDA Kenny and his Ministers face what may be their defining test in eight weeks when they ask the people to back Europe’s fiscal treaty. The household charge debacle underscores the depth of the challenge.

After the mass boycott of the charge, facilitated by disarray within the Cabinet, there are reasons to question whether the Coalition will secure passage of the treaty. Helped along by its own ineptitude, Kenny’s Government now finds itself with a big shortfall in receipts from the charge and an enormous political mess to clean up.

Ministers sent conflicting signals, the payment system was unclear and the administrative response was haphazard. None of this is to relish in the imposition of new taxes, far from it, but will the referendum be any different?

Whatever the individual reasons for non-payment of the household charge, the episode suggests there is a large reservoir of people who are inclined to bloody the Government’s nose given half a chance.

That is to be expected. Given the grinding scale of budget cuts, bank rescues and joblessness, there would be something awry if anger at the Government did not translate into a walloping over a new tax.

The danger now is that the same thing happens come polling day. Millions of euro are in play with the household charge – trifling in the grander scheme of the appalling fiscal implosion that the Government is trying to reverse.

At stake on May 31st will be something altogether bigger: regaining timely access to private debt markets. This is the very centrepiece of Kenny’s project. Everything else is subordinate to it, meaning the referendum merits nothing less than emergency treatment.

More than previous plebiscites on previous treaties, this vote carries immediate and grave implications for every single citizen of the State.

Passing the treaty is a necessary but not sufficient condition for private financing when the last of the bailout loans run out, as they will soon enough. It is but one of a thousand things that need to be done, but it is a crucial one.

Rejection would ensure Ireland remains shut out of markets, for the gaping lack of a European Stability Mechanism safety net would destroy the State’s credibility. To suggest otherwise is to be blind to the cascade of misfortunes which have befallen both Ireland and the euro zone since the financial crisis struck.

Calm may be restored temporarily, but this is no time at all to rip off the life-jackets. Spain and Italy are still deep in the danger zone, with attendant risk for the wider euro. In Rome, Mario Monti’s political honeymoon is over. New unemployment figures from Madrid show that 4.75 million Spaniards are now out of work.

The looming election in Greece presents yet more uncertainty.

With all of that in the backdrop, the present lull in the crisis may be no more than that. A Yes vote won’t immunise Ireland from any new explosion, but rejecting the treaty would magnify the threat to State and its people several-fold. It would also quash the gains made from austerity measures already in place for years.

Not only would access to the permanent bailout fund be barred in the event of a No vote, it would further entrench the humiliating sense of dependence which overshadows every single move the Government makes at home and beyond.

The twisting and turning over the dreaded Anglo Irish Bank promissory note is but one example.

The feeling is that “please” and “pretty please” are the dominant expressions uttered by Michael Noonan whenever he meets his European interlocutors these days.

The European Central Bank’s cold response to the convoluted scheme to defer last week’s payment did not require much elaboration.

Against the argument that the treaty will result in a further seepage of national sovereignty is the fact that economic sovereignty has already been surrendered. Whether that happened the night the Cowen administration guaranteed the liabilities of the entire banking system or when it finally applied for international aid is moot.

Right now, the Government is simply not at liberty to do as it chooses. This will remain the case for as long as there is debt to be repaid, even if Kenny and his ministers manage to break free of the bailout.

The same would be the case even if there was no treaty. Draft EU legislation, which does not require the assent of the Irish people, will see to it that every bailout recipient remains under intensive external tutelage long after their rescue programmes end. There is no turning away from that.

In Brussels, meanwhile, top officials take comfort from the fact that a couple of opinion polls show a majority in favour of the pact. The sense is that there is nothing to be unduly worried about.

We will soon know if that proves to be a false sense of seecurity. Whatever about the casual attitude in Europe, Kenny and his government cannot afford the blithe luxury of thinking this one will come right in the last couple of days.