Fisher Investments Editorial Staff
Developed Markets, Politics

Here Come the Irish!

By, 10/06/2009

Story Highlights:

  • Irish voters approved the Lisbon Treaty by a wide 34% margin last Friday, reversing June 2008's veto.
  • The Lisbon Treaty aims to streamline EU decision-making and reform existing EU structures.
  • Twenty-five EU member countries have now ratified the treaty, with Poland and the Czech Republic as the last two hold-outs.
  • Many previously doubted the EU could survive a major global recession intact—but the EU seems on pace to become increasingly unified and stable.

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Ireland, long a thorn in the ratification of the Lisbon Treaty, decided to play nice last Friday by approving the Lisbon Treaty by a wide 34% margin—reversing June 2008's veto.

The Lisbon Treaty aims to streamline EU decision-making and reform existing EU structures. Most notable, it will allow for legislation to get approved faster and create a full-time European Council president. Overall, the Treaty is broad in scope—it touches on citizens' rights, the European Central Bank, EU judiciary and legislative systems, the EU governing body, foreign relations, procedural rules for further amendments, climate change, defense, and solidarity.

All 27 EU members must approve the treaty for it to take effect, and the Irish vote eliminates a major hurdle. Poland and the Czech Republic are the last two hold-outs, with both Polish and Czech presidents voicing some opposition to ratification. Another potential pothole—David Cameron, leader of Britain's Conservatives and the widely billed prime minister successor in next year's elections, has vowed to hold a referendum on the treaty. However, Ireland's reversal could deflate some of the opposition's political hot air.

Many have doubts about EU integration (in Europe, they go by the moniker "euroskeptics), but the financial crisis highlighted how countries can more effectively share risk. The Irish economy, heavy in financials and housing, was particularly hard hit by last fall's crisis. To help stabilize the troubled Irish financial system, the ECB traded cash for Irish government bonds—essentially injecting massive amounts of otherwise unavailable liquidity (equaling more than a third of Irish GDP). Still battered by the downturn—unemployment is 12.6%—it's not surprising Irish voters had a massive change of heart.

Ireland isn't the only country drawn to the seeming stability offered by the EU following the financial crisis—Iceland and Croatia are well into talks to join the EU, and other Eastern European countries have expressed interest as well. Indeed, there seems to be an increasing "pro-EU" mentality, which can further add to EU stability and unity. Many previously doubted the EU could survive a major global recession intact—countries were assumed to want to pursue their own monetary policies rather than heed one central monetary authority. The risk of EU dissolution may have always been remote, but it was a risk for stocks nonetheless—and now that risk looks further removed.

However, if Lisbon is ultimately ratified, there is concern legislation could become easier. Stocks typically fear excessive legislation—especially if that legislation results in not-so-business-friendly "reforms" (think euro-wide cap-and-trade). But the EU doesn't have an enforcement arm. If individual countries ignore passed legislation and act in their own best interests, there is no real punishment—the EU cannot enforce laws. Plus, trying to reach some sort of agreement will be as difficult and drawn-out as in nations' multi-party governments.

Mostly, the increased unification of the EU under the Lisbon Treaty is a positive—for one, it improves the free flow of capital across borders. The Lisbon Treaty still has a couple more minor hurdles, but Ireland's vote reversal shows countries may now be more interested in economic safety than in upholding sovereign egos.  

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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