Irish Referendum Oct 2: Yes, This Time

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Ireland goes back to the polls Friday to approve the Lisbon Treaty after rejecting it in June 2008. Irish voters have been subject to a full court press, with even the EU, under the guise of simply informing voters, has seen to be weighing in heavily. All the lobbying and reassurances appear to be yielding the desired outcome. Polls out in recent days show the "yes" camp with a clear lead. The Sunday Independent puts it at 68%-17%. Separately, the Sunday Business Post puts it at 55%-25%, but if the undecided are removed the results shift to 67%-33%. The leadership of all the political parties and a number of business leaders have endorsed the Lisbon Treaty. One group that rejected the Treaty last year but may vote in favor of it now are the Irish farmers.

Assuming the Irish do approve the Lisbon Treaty, there is unlikely to be much of a market reaction, as it is widely expected. On the other hand, if the Irish reject the treaty a second time, it would be a significant blow to the EU. Eastern and central European countries would likely to be hit the hardest in a knee-jerk fashion. Irish bonds have been among the best performing in Europe over the past three months, with 10-year yields falling 109 bp here in Q3, meaning the spread against Germany has tightened by just shy of 100 bp, which nearly unwinds in full the widening that took place earlier this year.

Recall that that Lisbon Treaty is the compromise after the EU attempt to adopt a constitution failed. The EU is currently being governed by something that more resembles the US Articles of Confederation--than the US Constitution--weak central authority, without the power to tax and decision making requiring unanimity. In some ways, EMU is built on this flawed base of monetary union without political union. During the crisis, some of the institutional weakness have come to the surface and the IMF (and global tax payers) have had to step in the breach, with a number of support packages.