A second rejection of the treaty would be a gamble with no material pay-off, putting EU membership and the economy at risk, writes WOLFGANG MÜNCHAU
AFTER A week of what European leaders call reflection, another Irish referendum beckons, to be held early next year. Without it, there might well be an attempt to oust the Irish from the European Union.
A Yes vote in a second referendum is not certain, even if the Irish Government were to succeed in securing another treaty-amending protocol. At a time when the Irish economy is about to fall off a cliff, enthusiasm for the EU and its treaties will not increase.
So within a couple of weeks, the chances of Ireland ending up outside the EU have turned from zero to a distinct possibility. The same goes for the Czech Republic, another potential non-ratifier. I do not want to get into the legal details of how a country's departure from the EU could be accomplished. Suffice it to say that it can be done within European law as long as there is political will.
What strikes me the most about this extraordinary turn of events is the perception in Ireland that a break with the EU would be no big deal. I received a large number of letters from Ireland last week from readers who steadfastly maintain that the country's economic success had nothing to do with the EU and everything to do with domestic policy - in particular low corporate taxes and skilled labour.
The view expressed by those correspondents is as wrong as it is revealing. If so many people are delusional about their country's economy, then we should perhaps not be surprised about the outcome of the referendum. It is, therefore, perhaps worth looking in some detail at the nature of Ireland's economic success over the last 30 years to gauge what life might be like outside the EU.
There are several interactive factors. The importance of EU subsidies is almost certainly overrated. They played some part, especially in the early phase of the country's economic renaissance. In any case, Ireland is on the verge of becoming a net contributor to the EU budget. But one would be even more mistaken to conclude the opposite: that the EU matters nothing or little.
Ireland was one of the early and enthusiastic members of the European Monetary System in 1979, which brought much needed macroeconomic stability. Membership of the euro zone in 1999 led to lower interest rates, which have contributed to the economic growth ever since. Low corporate tax rates certainly helped Ireland attract foreign investors. But never forget that Ireland is also the only English-speaking member of the euro zone, the one place where euro zone and Anglosphere meet.
The country naturally benefited from membership of the EU's internal market. Without it, Ryanair, the Irish low-cost airline, would not be able to offer its popular flights across Europe. The Irish have also proved influential in the management of the internal market, not least through Charlie McCreevy, the Irish commissioner in charge of the EU's internal market and financial services. As a member of the EU, Ireland has been in a position to veto motions that would have impaired the country's economic success. Without steadfast opposition from Ireland, the EU would have made more headway in imposing corporate tax harmonisation.
I do not want to play down the importance of domestic policies either. Ireland owes its success to a complex set of policies and circumstances. Perhaps among the most important were the various tripartite social partnership agreements since 1987, through which the government, employers and the trade unions achieved a combination of wage moderation, high employment and low taxes. This form of round-table corporatism works best in tiny open economies. It is ironic that this country, whose officials take pleasure in hectoring others on free-market economics, is in fact one of Europe's most corporatist states. Even France and Germany cannot produce so much social partnership, and I can assure you that this is not for lack of trying.
So what would happen if Ireland were to leave the EU? As an associate member of the single European market, Ireland would probably attract less foreign investment. Dublin's financial centre would be demonised as an offshore tax haven and treated on a par with Liechtenstein. We would see lots of Ryanair flights between Dublin and Cork and the EU would put even more pressure on Ireland to raise corporate taxes.
Oh, and by the way, Ireland would no longer be a member of the euro zone. The Irish could use the euro if they wanted to but this would be like Panama using the dollar - a little sad, really. There would be no Irish voice in the European Central Bank's governing council warning that this is not a good time to raise interest rates. Leaving the EU involves a huge loss of power and influence.
To put it mildly, the No vote is highly risky. Considering that the country is now on the verge of a severe economic slowdown, it could not have come at a worse time. Not only does the No vote carry risks, it is a highly asymmetric gamble that brings no material benefit under the best of circumstances. The No vote put Europe's most impressive economic miracle at stake, and the cards are not looking good. - ( Financial Times service)
Wolfgang Münchau is an associate editor of the Financial Times. He is also a co-founder and director of Eurointelligence Advisers Limited, an independent internet-based service for economic commentary and analysis of the euro area