SCENARIOS-Irish vote on European Union's reform treaty

DUBLIN Thu Oct 1, 2009 8:45am EDT

Related Topics

DUBLIN Oct 1 (Reuters) - Ireland's referendum on the European Union's Lisbon treaty on Friday will either clear an obstacle to reforms planned by the EU or plunge the bloc into crisis. [ID:nLT92140]

Opinion polls suggest Irish voters will approve the treaty after rejecting it in 2008 but indicate the outcome will be close. The result will be clear on Saturday.

Following is a look at the likely implications of a "Yes" vote and a "No" vote.

IMPACT OF "YES" VOTE ON EU

The Lisbon treaty has to be ratified by all 27 EU member states to take effect. Irish backing would lift the executive European Commission's hopes of finally implementing reforms to streamline EU decision-making following its enlargement to 27 member states and give it more international clout.

It would turn the spotlight on Poland and the Czech Republic, whose eurosceptic leaders have yet to sign the treaty into law. Polish President Lech Kaczynski says he will ratify the treaty if Ireland backs it but Czech President Vaclav Klaus could still withhold approval, especially as 17 Czech senators have filed a constitutional complaint against the charter.

The Czech Constitutional Court, which has already rejected one complaint against the treaty, could take months to reach a decision. Klaus could try to hold off signing until Britain holds a parliamentary election due by next June.

British opposition Conservative leader David Cameron, who leads in opinion polls, has written to Klaus saying he intends to hold a referendum on the treaty if he wins the election and if the treaty is not yet in force. British voters would be expected to oppose the treaty in any referendum although the Labour government has already ratified it.

If the Czech Constitutional Court threw out the challenge promptly, Klaus would be under pressure to ratify the treaty.

IMPACT OF "YES" VOTE ON IRELAND

Irish ratification would boost Prime Minister Brian Cowen and his centre-left coalition government before what is expected to be a turbulent period.

Overseas investors, who are funding Ireland's day-to-day spending through regular bond auctions, and multinational companies would be reassured about the country's position in Europe and its long-term fundamentals.

Cowen's position would be bolstered before an Oct. 10 vote by his junior coalition partners on their commitment to the government and his "bad bank" plan, designed to cleanse its banking sector of bad debts after a domestic property crash.

It would also provide Cowen with some cheer in the run-up to a tough budget as he looks to cut public spending, despite the threat of strikes and mass protests.

IMPACT OF "NO" VOTE ON EU

An Irish rejection would spell the end of the treaty and the EU would face a crisis over how to implement the reforms set out in the charter. The outcome could briefly hit the euro currency, eurozone debt and potentially credit default swaps markets because of uncertainty around the future of the bloc.

EU leaders say there is no Plan B to salvage the treaty, although they could find other ways to implement the reforms, perhaps eventually including them in an accession treaty with Croatia if the Balkan country manages to join the bloc soon.

Political analysts say widespread apathy or disillusionment could set in, putting big EU projects on hold. The EU institutions would continue to operate but it would mark the end of a 25-year era of rapid EU integration and further enlargement would probably be put on hold.

Croatia, next in line to join, could be the only country that manages to enter the EU for several years. Accession talks with Turkey could freeze, which would discourage reforms there.

Some EU countries could gradually push ahead with closer cooperation in areas ranging from taxation to immigration, excluding others and creating a two-speed Europe.

IMPACT OF "NO" VOTE ON IRELAND

A "No" vote could damage Ireland's international image and create a false perception in financial markets that it is hostile to Europe and even the euro.

The spread between Irish and German 10-year debt could increase by 50 points to around 200 basis points. Some multinationals could be put off investing in Ireland.

Cowen could be forced to resign. Potential successors would include Foreign Minister Micheal Martin, Justice Minister Dermot Ahern and Finance Minister Brian Lenihan.

The centre-left coalition government would be badly shaken and members of the Greens could oppose the government in the Oct. 10 vote. This could lead to an early election, in which the centre-right Fine Gael party would hope to take power, probably in a coalition government with the left-wing Labour Party.

The "bad bank" plan would then be jettisoned, hitting bank shares and bonds. Efforts to squeeze 4 billion euros from next year's deficit could also be complicated by the Labour Party's opposition to public sector pay cuts.

(Reporting by Carmel Crimmins)

FILED UNDER: