Q & A: Irish referendum on EU Fiscal Treaty

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What is the fiscal treaty?

It is an agreement of 25 of the European Union's 27 members (the UK and Czech Republic excluded) which aims to ensure much closer budgetary co-ordination between countries.

It was agreed in response to the ongoing Eurozone crisis and is designed to restore confidence.

Strictly speaking it is not a treaty - it is an inter-governmental agreement.

Europe's leaders hoped this would allow countries to ratify the agreement quickly, however, the Republic of Ireland's attorney general ruled that it would be unconstitutional to adopt it into Irish law without a referendum.

Does the treaty depend upon the Irish vote?

No. It comes into effect whenever 12 eurozone countries ratify it.

Most will do that through votes in parliament. A number already have.

If the Republic of Ireland votes yes, what will the treaty change?

To a large extent the treaty merely enforces the rules that should have been applied within the Eurozone but have clearly been flouted by all countries.

It will enshrine in national law agreed budget targets and will require changes in taxation or spending in order to meet these targets.

A new rule will focus on reducing "structural deficits".

Hitherto, the EU rules have related to overall deficits, but in the current high debt environment it is thought the structural deficit, which is adjusted according to the economic cycle, is a better target.

That is because it allows countries' overall deficits to grow in response to the downturn, but ensures the underlying finances are put right.

For the Republic of Ireland, this will mean reducing its structural deficit to 0.5% of GDP.

Because EU rules have been ignored by so many countries, in so many ways, there are new means to enforce the treaty.

The EU Court of Justice will now be able to fine countries that do not enact the right legislation. After that, however, it's up to the countries themselves to enforce the law.

Will the treaty impose permanent austerity on the Republic of Ireland?

Ireland's huge debt hangover cannot be wished away, so the process of balancing the books is necessary regardless of the treaty.

There is some argument that the economic targets set could be too tight, but the focus on structural deficits rather than overall deficits does allow some room for flexibility.

If the Republic of Ireland votes no, what will happen?

Countries who do not implement the treaty are not entitled to EU emergency funding under the European Stability Mechanism.

The Republic of Ireland is heavily reliant on money from that fund and the International Monetary Fund (IMF).

It hopes to be able to leave that process and return to the international bond markets in 2014, but there's no guarantee that it will be ready and it might continue to need emergency funding.

The Irish government also argues that a no vote could damage the country's success in gaining international investment.

On previous occasions when Ireland has initially rejected EU treaties in referenda, another vote has taken place and the treaties have been passed.

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