Ireland Vote on Euro Treaty Will Be Close: Economists

The beleaguered population of Ireland will take to the polls to vote on the new European Union treaty later this year – and could use the opportunity to register a protest vote against austerity.

Ireland and European Union
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Ireland and European Union

A split over the referendum has already emerged at the top of Fianna Fail, Ireland's second-biggest party, which was in power before last year's election.

Deputy leader Eamon Ó Cuív has resigned after openly defying the party’s support for the fiscal treaty referendum.

Prime Minister Enda Kenny announced on Tuesday that the country would hold a referendum on the treaty.

Ireland has a history of rejecting EU treaties in the first vote – which usually sees a lower turnout – before accepting them the second time around.

While the country has been hailed as a poster boy for austerity, and has staged a small recovery from the debt crisis, the economic situation is still far from perfect.

Unemployment is hovering around 14 percent, and mass emigration among young people has returned as the job market contracts.

There is still resentment that the previous government’s vow to guarantee deposits at the six main Irish banks helped cause the current problems.

The Irish people’s concerns about “the need for strong EU and international support for the economy” should help gain a majority vote for the treaty, Gillian Edgeworth, chief EEMEA economist at UniCredit, wrote in a note.

“However opposition is also set to be more vocal than in the past, with a clear risk that polls show a close outcome up until the eve of the vote,” she warned.

“The Irish people are very independent and will make up their own mind,” Lucinda Creighton, minister of state for European affairs, Ireland, told CNBC Wednesday. “People are quite confused on the detail of the fiscal compact, so we have a big task to provide adequate information to enable people to make up their minds.”

She added that she is “pretty confident” that the treaty, which is backed by Ireland’s two biggest political parties, will be passed.

Ireland’s low corporation tax, which has helped attract investment from multinationl corporations in recent months as the country’s cost of labor has declined, is viewed by many as key to its economic recovery. The treaty leaves national governments with responsibility for setting tax rates.

“The one big advantage that Ireland has got is that they don’t have to do the big structural reforms in terms of getting labor markets to work more effectively, and that’s why we are seeing their competitiveness adjusting more quickly than Greece and others,” Peter Westaway, chief economist, Europe at Vanguard Asset Management, told CNBC.