DUBLIN (Reuters) - Ireland’s government declared victory in a referendum on Europe’s new fiscal treaty on Friday but saw little reason to celebrate as problems across the euro zone continued to weigh on steady progress at home.
The government had campaigned strongly for voters to back the treaty, arguing that a rejection would hurt Ireland’s chance of attracting the investment it needs to recover. With counting still under way, ministers said it was clear that the measure had passed, and opponents conceded defeat.
“It’s a sigh of relief from the government rather than a celebration,” Transport Minister Leo Varadkar told reporters while watching votes being counted in Dublin.
Ireland’s European affairs minister Lucinda Creighton told Reuters the government was “very, very confident” of a “Yes” vote after early counting. Dominic Hannigan, deputy director of elections for the junior governing Labour party, predicted it would pass by a margin of 57 percent to 43 percent.
Sean Crowe, a member of parliament for the opposition Sinn Fein party which spearheaded the “no” campaign, said he accepted that the result was a “yes”.
Ireland has been held up by its European partners as the poster child for austerity, implementing an 85-billion euro ($106 billion) EU/IMF bailout to the letter as others, notably Greece, remained the center of euro zone debt concerns.
Yet Ireland desperately needs Europe’s woes to ease if it is to rack up the kind of export-led growth required to pay down its debt - set to peak at a dangerously high 120 percent of gross domestic product (GDP) next year - and ease unemployment.
Ireland is the only country that will put the fiscal treaty - a German-led plan for stricter budget rules - to a referendum. The treaty needs the approval of only 12 of the 17 euro zone countries to be ratified, but an Irish rejection would have undermined one of Europe’s key initiatives just as problems mount in Spain and Greece.
Analysts said that a ‘Yes’ vote would give Ireland a better chance of getting back to bond markets as planned next year and hand Europe a rare piece of good news, though one it will have little time to bask in with more to worry about elsewhere.
“I don’t think there will be much market reaction this morning, simply because it’s in line with expectations that were built up because of the polls,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers.
“It is a message of support from Ireland to Europe, I think that’s very simply what it is. Policymakers won’t have long to celebrate because there are wider issues in the euro area that they now must move their attention onto.”
Irish two-year bond yields were higher on the day at a near five-month high of 7.53 percent, meaning short-term borrowing costs still remained above those on longer-term bonds, a sign that investors are pricing in the possibility that Dublin will need a second bailout.
In a sign of the modicum of stability that has returned to Ireland’s economy, data showed on Thursday that deposits held by Ireland’s domestic banks rose to a 14-month high in April.
That was in sharp contrast to Spain where depositors worried about their banks moved money abroad at the fastest rate since records began, recalling the tens of billions of euros that flew out of Ireland ahead of its bailout.
A survey on Friday also showed that growth in Irish manufacturing accelerated in May with the NCB Purchasing Managers’ Index climbing to 51.2 from 50.1 in April to boost employment growth in the sector.
The modest growth meant Ireland remained the only country in the euro zone showing growth in the amount of goods and services companies are purchasing, putting it way of ahead of Germany’s 45.2 and the euro zone average of 45.1.
“I think this (referendum result) now just gives that bit more certainty as to where the economy is heading,” said Fergal O’Brien, chief economist at the Irish Business and Employers Confederation’s (IBEC).
“But it doesn’t in any way paper over the problems we have in the domestic economy, the high unemployment, the lack of growth in many sectors of the economy.”
The referendum debate was squarely framed around a clause in the treaty stating that only those states that sign up can access future European bailout money. The finance minister had warned that a “No” vote would be a “jump into the unknown”.
Ireland hopes to exit its program at the end of 2013 by re-entering bond markets, but the government has argued that access to Europe’s new bailout fund, the European Stability Mechanism (ESM), is an essential backstop should the mood of uncertainty across Europe scupper its plans.
The “No” camp, which had insisted Europe would not dare cut Ireland off, warned the government that the sharp class divide seen in the polls indicated that it could face more resistance with at least three more years of harsh austerity ahead.
“It certainly looks very likely it will be a ‘yes’ but it will be a pyrrhic victory. People were not happy to say yes,” Paul Murphy, a Socialist Party member of the European Parliament, told Reuters.
“The government are building up problems for themselves”
Writing by Padraic Halpin, Additional reporting by Lorraine Turner; Editing by Peter Graff