Ireland’s Moment of Fiscal Decision

Once again, Europe is watching an Irish referendum with bated breath. Despite the economic pain that Ireland has endured since the financial crisis began, the Irish people understand that they need the EU if they are to recover and build on the country's sound fundamentals.

DUBLIN – “The construction of Europe is an art,” former French President Jacques Chirac once said. “It is the art of the possible.” If so, then Europe’s deconstruction – or, worse, its collapse – would be a shockingly fearful and painful business.

That was the situation faced by European leaders last autumn. The euro was in serious trouble, buffeted by rumors of imminent banking collapses. Bond yields in southern Europe were rising, and a pervasive sense of apprehension and fear cloaked governments in European capitals. But political leadership was sorely lacking.

Finally, in December, decisive action was taken. There would be a “fiscal treaty,” which would reinforce the Stability and Growth Pact and, importantly, entail automatic sanctions to ensure that eurozone members stick to those rules. At the same time, the European Central Bank unleashed its €1 trillion ($1.3 trillion) long-term refinancing operation, which pulled the European banking system back from the brink.