Europe

Irish government has eyes on European treaty referendum

Ireland's Prime Minister Enda Kenny (30 Jan 2012)
Image caption Taoiseach Enda Kenny and his government are urging a yes vote

The Irish government is keeping a keen eye on all economic news as it prepares for a referendum on the European Fiscal Compact treaty, which aims to keep budgets under control in the eurozone.

With opinion polls showing 60% in favour of the treaty at the moment, the Yes side knows that with two months to go before voters cast their ballots, all that could change.

There has been a lot of interest in two contradictory bits of economic news on Monday.

On the one hand a survey shows property prices appear to be bottoming out, while on the other one of the Irish Republic's troubled banks reported that it had set aside 1.4bn euros to provide for losses on mortgage loans - which were more than three times higher than in 2010.

The housing survey, from Daft.ie, reveals that the first quarter of this year saw the smallest decline in asking prices since the market started to collapse in 2007.

It found that prices fell by 1.4% on average in the first three months of the year, compared to a fall of 8% in the last three months of 2011.

The national average asking price is now 177,000 euros, down 52% from the peak of the market.

The survey also shows that the average asking prices in Dublin and Galway city centres rose by 4% and 2.3% respectively.

But prices in the main population centres south of that Galway-Dublin line were lower with Cork down by 5%, Waterford by 7% and Limerick by 1%.

'Difficult environment'

If that is relative good news, then the announcement from Permanent TSB is certainly worrying for the Irish authorities.

Its chairman Alan Cook said the group's performance reflected the "difficult economic environment" and "rising impairment charges" in its Irish mortgage book; in other words, the faltering economy, high unemployment, falling house prices and negative equity haven't gone away.

If anything it all got a lot worse in 2011 compared to the previous year.

The number of accounts greater than 90 days in arrears jumped by 71% to 20,816 cases in 2011, up from 12,200 cases in 2010.

That means 12% of TSB Permanent's mortgage portfolio is now in arrears, up from 6.8% in 2010.

The bank is also the subject of ongoing negotiations between the Irish government and the European-IMF Troika that oversee the Republic's bail-out.

A decision regarding its future is expected to be made by the end of this month.

That's the current economic context for the forthcoming referendum, which is likely to be dominated by two emotions - fear and anger.

Fear about the effects of the economic uncertainty that might follow if the treaty is rejected and anger with the austerity associated with the bail-out and the continuing cost of rescuing the banks.

The coalition government of Fine Gael and Labour and the main opposition party, Fianna Fail, are all urging a Yes vote saying it will help bring to an end the eurozone crisis.

Sinn Fein and most independent TDs are calling for a No vote because they say the treaty promises only more austerity and hardship.

Normally fear of uncertainty trumps anger.

The government will be hoping that remains the case on 31 May when voters go to the polls.

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