It is, as one Dublin professor said as he headed to the referendum ballot, "very much damned if you do, damned if you don't."
Ireland voted Thursday in a nationwide referendum on whether to accept the European Fiscal Compact, a 25-nation treaty designed to reduce the debt crisis afflicting the 17 countries that use the euro as their currency.
The treaty imposes tough, German-inspired discipline on the continent. It would force governments to be far more tight-fisted. While current EU rules forbid deficits from rising above 3 per cent of GDP, they have largely been ignored, even by Germany. The treaty would limit deficits to 0.5 per cent and force countries to make this national law.
Ireland is the only country to take it to a ballot and the results will be known on Friday afternoon. But even if the Irish vote "no," it won't affect the treaty in any other parts of Europe as it has already achieved the 12-nation majority necessary to be ratified.
And it won't affect Ireland very much, at least in the short term: The country is already in the midst of a severe program of government spending cuts and restrictions, imposed in the wake of the country's 2008 real-estate and banking crisis in exchange for bailout funds. This program will likely make things painful through 2015; the treaty wouldn't make life much different for most people.
So unsurprisingly, the voter turnout was poor. In the late afternoon, officials reported that fewer than 25 per cent of Ireland's 3.1 million eligible voters had bothered to cast a ballot.
But the Irish referendum has become an important microcosm of Europe's debate over how to respond to the mounting debt crisis, which has enveloped Greece and this week left Spain close to default.
It pits advocates of tough measures to cut spending and raise taxes, led by German Chancellor Angela Merkel, against those who say that only a return to economic growth, consumer spending, inflation, industrial production and employment will produce the economic activity – and thus the tax revenue – needed to reduce the debts and reassure markets.
Advocates of an Irish "yes" vote – and polls put them in the lead, albeit with a very large number of undecided voters – say that a "no" will make it impossible for Ireland to borrow, either from the emergency European Stability fund or from open bond markets, and will thus put the country at the whim of the International Monetary Fund or force a catastrophic default.
"We would expect there would be a sharp selloff of Irish government votes if there's a 'no' vote," Owen Callen of Dublin's Danske Markets said in a TV interview. So a "no" vote could erase all the gains of the past four years and push Ireland into its worst crisis yet.
But those supporting a "no" vote note that Ireland is already largely dependent on the IMF, that their country was never guilty of heavy government spending, inefficiency or corruption of debt (the real-estate bailouts were the cause of their crisis). And they add that four years of similar austerity have resulted in 14.5-per-cent unemployment, borrowing costs higher than those in Spain and Italy, and no economic growth projected for 2012.
By rejecting the treaty, the "no" side says, Ireland will send a message to Berlin and Brussels that a purely debt-cutting approach to the crisis isn't working. That message has received a strong backing from newly elected French President François Hollande, from the Dutch parliament and from many economists, who say that inflationary growth is needed to stop the downward currency and debt spiral.
The economist Paul Krugman made an intervention Wednesday, arguing that a "no" vote would send an important message because "at this point the Germans need to face the reality that this cannot work and that … the whole intellectual framework has been tested to destruction in the euro zone."