ECONOMICS SEMINAR:A NO vote on the Lisbon Treaty would be "quite disastrous" for the Republic's financial standing and would raise the cost of debt for the State, banks and consumers, Government adviser Dr Alan Ahearne warned yesterday.
Addressing a gathering in Dublin of economists recommending a Yes vote, Dr Ahearne said the markets are “fairly confident” that Irish voters will vote in favour of the treaty on October 2nd. The opposite result would, therefore, automatically damage sentiment, leading to higher borrowing costs for the State and for banks, he told the Economists for Europe seminar.
This would be “particularly tragic” in light of reductions in borrowing costs seen very recently, he added, noting that the difference between the cost of borrowing for the Irish and German states was now approaching levels seen before last year’s collapse of Lehman Brothers. It would be “quite disastrous” to have this gap widen again, Dr Ahearne said, later acknowledging in response to a question from the floor that this could ultimately lead to more costly mortgages for consumers.
Prof Antoin Murphy of Trinity College agreed that the declining difference between German and Irish borrowing costs implied that the financial markets were “optimistic” about a Yes win. A No vote would thus lead to an immediate jump of up to half a percentage point in this “spread”, he said.
“An increase of up to half a per cent in Ireland’s annual borrowing of €20 billion would greatly increase the cost of servicing Ireland’s debt,” Prof Murphy said.
He strongly urged ratification of the treaty, saying there was “no benign scenario” for the economy following a second rejection.
Prof Murphy’s views were echoed in a survey of 66 academic economists carried out by economic consultants, Indecon, which concluded that a Yes vote would be best for the economy. Some 90.8 per cent of the respondents, including economists from Indecon, the Economic and Social Research Institute (ESRI) and various academic institutions, agreed that Ireland’s “overall economic interests are likely to be best secured” by voting Yes.
Two-thirds of those surveyed said a Yes was likely to facilitate the attraction of foreign direct investment, while 82.1 per cent judged a Yes was likely to help develop confidence in the economy. Slightly more than half of the economists concurred with Dr Ahearne’s assessment on borrowing costs, finding a Yes would help reduce costs of State borrowing.
Alan Gray, managing director of Indecon, said a No vote would give rise to great uncertainty about the economy, threatening foreign direct investment.
“Uncertainty when an economy is vulnerable is a completely different thing to uncertainty when everyone thinks we’re better than sliced bread,” said Mr Gray.
Ibec chief economist David Croughan and Paul Sweeny, economic adviser to Ictu, also called for the treaty’s ratification.
In a separate move yesterday, the Irish Funds Industry Association (IFIA), which represents fund management and administration companies, said a Yes would deliver a certainty that would help attract funds business to Ireland.
IFIA chairman Michael Jackson said: “We believe that adoption of the Lisbon Treaty will establish a degree of certainty that Ireland will continue to be centrally involved in issues which matter to our industry, and this certainty will be important to the foreign institutions that choose Ireland as a jurisdiction in which to domicile their funds. We also believe that the reputational cost for Ireland of failing to adopt the Lisbon Treaty cannot be estimated, and that the degree of uncertainty that it would create will be extremely harmful to our industry.”
