Following elections Sunday, François Hollande will be inaugurated as France's new president on May 15. His key pledge throughout the campaign was to renegotiate the fiscal treaty agreed by his predecessor, Nicolas Sarkozy, in order to make it more growth-friendly.
But ahead of a planned meeting with Mr. Hollande shortly after his inauguration, German Chancellor Angela Merkel has made it clear that the treaty is "nonnegotiable."
It is possible that the euro zone's two most important leaders will have reached a compromise by the time Irish voters make their judgment on the treaty in a referendum May 31, but it is also possible the disagreement will take longer to resolve.
That uncertainty adds to the difficulties facing the Irish government and other backers of the treaty, and has led to calls for the referendum to be postponed, an option the government rejected Monday.
"If we defer a decision we can expect that people who are thinking of investing in Ireland may defer their decision as well and that's not something that we want," said Eamon Gilmore, the deputy prime minister.
Opponents of the treaty in Ireland claimed the results of the French and Greek elections represent a rejection of the austerity the pact enshrines.
"This weekend's election results have shaken the pro-austerity forces across Europe," said Mary Lou McDonald, deputy leader of the left-of-center Sinn Fein party, which is opposed to the treaty. "However, they have not been dealt a knockout blow. A No vote in Ireland will strengthen the hand of all those arguing for jobs and growth."
Opinion polls suggest that a majority of Irish voters will back the compact, if only because their refusal to do so would mean the government wouldn't be able to access the euro zone's permanent bailout fund, the European Stability Mechanism.
But the number of voters who have yet to make up their mind remains large enough to affect the outcome, and the lack of clarity about what the treaty entails will make it difficult for them to reach a judgment. Opponents have dubbed the fiscal compact the Austerity Treaty, and political analysts said that is a problem for the government, although one it can overcome.
"They find themselves cornered by having the word austerity lobbed at them," said Ben Tonra, associate professor of international relations at University College Dublin. "They are not selling it as a broader package of recovery. But they can link Hollande's agenda into their own agenda of growth."
Speaking to reporters Tuesday, Irish Prime Minister Enda Kenny attempted to do just that, stressing the government's support for Mr. Hollande's emphasis on measures to boost growth. "I welcome the fact that president-elect Hollande has been talking about growth and investment, which is what Ireland has been talking about along with a number of other leaders for the last number of months," he said. "Clearly, we support that position very strongly as an addition, and in his own words, as a complement as to the existing treaty."
While the treaty may not be renegotiated, it is likely to be complemented by a "growth pact" that would make the euro zone's overall economic policy stance less focused on austerity, and that should boost support in Ireland.
"If the Yes side cedes the argument of growth to the No side, it would be stupid of them," said UCD's Mr. Tonra. "They should be celebrating the fact that Hollande is seeking a growth agenda and is going to supplement the existing treaty."
The Irish referendum is important for the credibility of the new fiscal treaty, because it is likely to be the only review of the treaty by voters in a member state. Ratification elsewhere will take place through national parliaments.
But passage of the referendum is critical for the Irish government's plans to return to the international bond markets this summer, and fund itself exclusively from that source by the second half of next year.
Without access to the bailout fund, bond investors are likely to judge the government too risky to lend. With access, the government will look like a much safer bet.
Unable to borrow in the international bond markets, the Irish government was forced to seek €67.5 billion ($88.09 billion) in loans from the European Union and the International Monetary Fund in late 2010.
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