The great irony of the drama over Ireland and its planned referendum is that the exercise
of what amounted to a veto by the United Kingdom has left Ireland with no power of veto
over what is now an intergovernmental agreement. In the past, treaty changes have had a
tortuous history often because of their painful passage through the Irish constitutional maze.
Either Ireland and others voted Yes, or the treaty failed. This time if Ireland votes No, the
agreement will be ratified by others and Ireland will be left with no recourse to the European
Stability Mechanism and the funding that may be required from it in the future. This would
have serious consequences for Ireland’s return to the markets.

All of this would be doubly unfortunate as Ireland has been performing well in putting its
finances in order. There is a long road ahead but it is making real progress. Exports are
thriving and foreign direct investment is buoyant. The Irish are not fools. They know how
good Europe has been for them. There is no country, other than Belgium, with a greater
dependence on trade in Europe. The EU’s internal market provides the foundation for
investment and jobs in the Irish economy. The euro is an essential element in this construct;
its failure would be a disaster for Ireland (as for everyone else).

The substance of the “fiscal compact” itself is essential for the euro’s future. It is plainly
unsustainable for a eurozone member to run deficits impairing a shared currency and
leading to the need for bail-outs. As the terms of the proposed treaty provide, the co-
ordination of the economic policies is based on the objective of sound government finances
as a means of strengthening the conditions for price stability and for sustainable growth. So
this agreement is all about ensuring the euro’s healthy survival.

Of course, the initial idea was to revise the EU Treaty, but that was then excluded following
the United Kingdom’s intervention. The second-best option was to enact an agreement
that should have a similar legal status to ensure that commitment to the new rules occurs
at the highest possible level. This new agreement is led by eurozone member states and
is of course open to others, but it shows that the eurozone wants to develop its economic
governance, even if alone. This is as it should be. The intergovernmental agreement
comprising the fiscal compact will give more teeth to what has already been agreed.

Of course, the process needs to go further if the euro’s future is to be assured. A major goal
of the eurozone countries in the past two years has been to reassure markets of the euro’s
durability and the financial stability of its governments. Their efforts have had some success,
but always fallen short of permanent reassurance because global lenders have believed
some important members may be unwilling to do everything necessary to preserve the
euro. Solidarity and mutualisation are watchwords in this debate. The economic and social
strains to which Greece is currently exposed are a poor advertisement for the solidarity of
the eurozone. So the stronger European economies do need to specify the conditions under
which they will ensure a sound banking system, develop mutualised issues of public debt
and balance necessary fiscal austerity with effective policies on growth and jobs.

Over its history, the euro has been assailed by critics who believed or hoped it would
never come into being; that if it did it would rapidly dissolve; that its existence would ruin

the economies of its members; that it would destroy the EU. Despite the now evident
faults in the euro’s original architecture, none of these predictions has been fulfilled. The
developments of the past two years rather suggest that, slowly but surely, member states
realize the euro’s future and their own prosperity are dependent upon their ability to pursue
economic policy in common rather than separately.

This common policy cannot be attained simply on the basis of strict accounting, to ensure
that each member state’s financial contribution matches – in the short term – its financial
benefits from the Eurozone. In another world, it might have been possible to proceed further
on this path of common economic policy. Democratic politics do not always allow this luxury.

When the euro was introduced national governments (including the UK) sought to keep
the greatest possible national autonomy for economic decision-making. Looking back, we
can see that this was inadequate. Much of the past eighteen months has been devoted to
repairing the gaps in the euro’s structure of governance. The process is not yet complete,
but remarkable changes of approach from member states are clear. The ratification of the
agreement is an essential part of this process. This will be appreciated by Irish voters in the
referendum and they will vote Yes.

This article was first published in The Financial Times.