January 30, 2012

Ireland Could Put New Eurozone Treaty to Referendum

Threat to euro unity extends beyond Greece

As eurozone ministers gather Monday to put the final touches on a treaty set to tighten budget rules for the bloc, disagreement in Ireland over continued austerity could threaten the currency even as arguments over Greek debt could force the expulsion of Athens from the group.

The opposition in Ireland, according to a Reuters report, has repeatedly pushed for a departure from the eurozone rather than forcing the nation to continue under a punishing austerity program. Now the opposition is pushing to bring the new treaty to a vote, and the government fears that the Irish people will vote it down in a rebellion against austerity.

All attention has been hitherto devoted to the struggles to resolve the Greek debt problem, with a default by Athens threatening the unity of the common currency. Over the weekend Greece rejected a proposal by Germany that Athens should give up control over its budget altogether in favor of a caretaker administration by the European Union  or some other external body; Germany has been dissatisfied with Greece’s efforts to meet its budgetary goals set by the EU, the International Monetary Fund and the European Central Bank, known as the troika.

In the past week a major threat to Greece’s ability to avoid default has arisen in talks with the country’s private creditors; some hedge funds have been holding out for a triggering of credit default swaps rather than accepting substantial writedowns of sovereign Greek debt. Such a trigger would push Greece into default and possibly an exit from the eurozone. While both sides were “close” to an agreement on Saturday, according to a Bloomberg report, a final agreement had not yet been reached.

Now, with Ireland possibly considering a vote on additional budget austerity rather than accepting the new terms, the currency faces an additional threat.

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