Irish referendum

In a popular vote, a majority of Irish agreed to ratify an EU deficit-fighting treaty - at least a majority of those who actually went to the ballot boxes. Disenchanted, most voters abstained - voter turnout was at less than 50 percent. Nevertheless, the euro zone can breathe a sigh of relief: a 'no' from Ireland would have unsettled highly volatile financial markets even more and depressed rates even further. It would have driven up borrowing costs for Spanish government bonds, already at a record level. Thank god this nightmare scenario has passed us by! Hooray!

Common sense wins

The Irish made a rational choice and voted in favor of ratifying a fiscal compact designed to give Europe more budget discipline and balanced budgets in the long run. This time, the Irish resisted the temptation use the referendum to punish the government for its domestic policies, an attitude that proved successful in popular votes on European issues in 2001and 2008.While Prime Minister Enda Kenny and his allies have won this round, low voter turnout suggests the vote does not reflect a passionate commitment to Europe and the bailout.

Hit hard by the economic crisis, the Irish recognized that voting 'no' on the treaty would have been detrimental to the country. Public rejection could have blocked Ireland from receiving new loans from the EU and possibly even from the International Monetary Fund (IMF) once its 2010 bailout money runs out next year. But Ireland, like Greece and Portugal, depends on European aid because it currently can't refinance on the capital markets. A crisis in the housing sector followed by a banking crisis that led to excessive public deficit forced Ireland to tap the bailout fund. However, in contrast to Greece, Ireland has adhered to austerity rules and could thus dig itself out of the quagmire within a few years.

Good news for Merkel

Ireland's pro-treaty vote adds a bit of momentum to German Chancellor Angela Merkel's euro bailout course. Now, she can counter French President Francois Hollande and his demands for changes in the fiscal compact by saying even the often stubborn Irish will ratify the treaty. Hollande will have to accept that he is not in a position to change the treaty; at the most, he can embellish it with a non-binding appendix on growth initiatives. To save the common currency from failing , France, too, will have to ratify the treaty in the long run.

The Irish vote allows political leaders in the euro zone to take a breather - no more than that. All eyes are on the repeat general election in Greece on June 17. Should the parties that refuse budget discipline and austerity programs win the vote, chaos might break out. Greece might become the first country to leave the eurozone, with barely calculable consequences for Spain, Italy and even France. But in view of the poor economic outlook for Europe, shares tumbled on Friday despite the positive signal from Ireland.

EU Economic and Monetary Affairs Commissioner Olli Rehn warned this week: "The eurozone is still in great danger of breaking apart." The Irish referendum hasn't changed that dire outlook.

Author: Bernd Riegert/ db
Editor: Gregg Benzow