'No' vote on EU fiscal pact would be 'devastating for Irish economy'
Rejection could trigger a bank run and eventual exit from euro, warn economists
A 'No' vote to a referendum on the EU fiscal pact here would be devastating for Ireland. A group of top economists has warned it would trigger a bank run and eventually force Ireland out of the euro.
Addressing an Oireachtas committee, Professor John McHale, who is a member of the Fiscal Advisory Council that independently monitors the government finances, said by voting 'No' Ireland would be taking a "huge risk".
The price at which the Government could raise money in the bond markets would immediately spiral, he warned, and nervous bank customers would withdraw their deposits at a rate that could trigger a run on a bank here.
"Ireland could end up not being able to access a bailout fund or the market," according to Prof McHale.
None of the economists enthusiastically endorsed the strict monitoring of government finances the new treaty would impose and there is no guarantee the Irish public will be asked to approve it.
A group of independent TDs is trying to force a vote on it and the Attorney General is examining whether it needs to be put before the people.
UCD economist, Professor Karl Whelan, said that while the economics of this treaty are "pretty terrible" there were still "good reasons" for Ireland to sign up to it.
"I don't like the treaty but on balance our national interest requires signing it," he said.
"Once it is passed it is going to be extremely difficult to change it. We are going to be stuck with it."
Dr Alan Ahearne, an economist at NUI Galway and a former adviser to the late Finance Minister Brian Lenihan, said the fiscal compact would not solve the euro crisis but was a "first step" in a wider solution.
Not agreeing to the proposed Europe-wide reforms would not automatically trigger expulsion for Ireland from the euro but it would deny us access to Europe's permanent bailout fund to be established in July.
If Ireland were not able to access this pot of money this would put the economy in "a terribly dangerous place", Dr Ahearne said. Irish banks have already lost a lot of deposits, he said, and if there were concerns about where Ireland would be able to borrow money after the bailout programme in 2014, more money could leave the country.
Tom McDonnell of the TASC think-tank said at best the fiscal compact is incomplete and there are other "jigsaw pieces" needed to resolve Europe's debt crisis. "At worst it will damage recovery in the Irish and other European economies," he told the committee.