The eyes of the world are on elections in Greece next month that could determine whether it defaults and triggers contagion throughout the euro area. By contrast, Ireland’s referendum tomorrow on whether to ratify Europe’s new fiscal treaty is passing almost unnoticed.

That’s odd, because although Ireland can’t veto the pact -- its full name is the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union -- the government is warning voters that the very same thing could happen here as in Greece.

As in Greece, austerity in Ireland has been imposed by a coalition government of established centrist parties, Fine Gael and Labour. And as in Greece, the government is warning that unless voters cast their ballots the right way, the country could be cut off from access to funding provided by the European Stability Mechanism. That would certainly trigger an Irish default.

Why, supporters of a “Yes” vote ask, would the rest of the euro area go on bailing out a member that has rejected the rules of the currency union? And if, as most economists believe, Ireland will need a second bailout, the fiscal treaty’s preamble is explicit: It states that “the granting of assistance in the framework of new programs under the European Stability Mechanism will be conditional, as of 1 March, 2013, on the ratification of this Treaty.”

Greek Picnic

Default would be catastrophic for Ireland and for Europe. In fact, it would make a Greek default look like a picnic. German banks, in particular, are heavily exposed to Irish sovereign debt, carrying about 150 billion euros ($187 billion) worth on their books. That dwarfs their remaining exposure to Greece, and the problem isn’t confined to the euro area: U.K. banks hold about 180 billion euros of Irish debt.

Yet there are good reasons why markets aren’t tumbling on the risk of an Irish “No” vote, while proving hypersensitive to the election in Greece. The first is precisely that Irish debt is threaded through the European banking system to such an extent that even the possibility of an Irish default could do untold damage to market confidence in the euro. As a result, it’s highly unlikely that the euro-area governments, or the European Central Bank, would punish Ireland for rejecting the treaty by cutting off its lifeline. Doing so would amount to collective suicide.

A second reason is that Ireland isn’t Greece. The contrast between the ways in which the two countries have handled the financial crisis could hardly be greater. Ireland was among the first to be hit and to bail out its banks. It has been a poster child for austerity ever since, dutifully imposing every piece of fiscal tightening that the EU and the International Monetary Fund tied to its 85 billion-euro bailout.

If the EU’s star pupil were then to be consigned to the disaster zone of default, in response to an exercise in democracy such as a referendum, how could other debt-ridden states be convinced of the value of implementing austerity policies? And what would remain of EU solidarity, the glue that holds together the 27-nation bloc of giants like Germany and minnows like Ireland in a system based on consensus?

The stakes for Ireland are nevertheless large and help to explain the fervor with which the two sides are arguing over the possibility of default. The government also says ratifying the fiscal treaty would ensure stability and economic recovery, while rejecting it would do the country enormous reputational damage in Brussels and the U.S. That could jeopardize Ireland’s export-based recovery, which is dependent on foreign direct investment from U.S. multinationals.

‘Austerity Treaty’

On the “No” side, two left-wing parties -- Sinn Fein and the United Left Alliance -- have labeled the new set of fiscal rules the “EU Austerity Treaty.” They say adhering to it would entrench the EU’s control over Irish budgetary policy and lead to a dystopian future defined by higher taxes and lower social spending.

The case against the government’s stability argument is simple: If fiscal retrenchment is the only path to follow, why has this not produced a change in the fundamentals of the Irish economy after years of budgetary purgatory? After all, Ireland was much faster to react to the crisis than any other euro-area country, in both raising taxes and cutting spending.

Yet Irish borrowing rates remain higher than those of Italy and Spain, let alone in the core euro-area countries. Far from austerity encouraging a return to growth, Ireland is now in its fifth year of fiscal retrenchment. There will be virtually no growth in 2012, and the credit squeeze is just as evident as it was in 2009 or 2010.

The precarious position of Irish public finances means that regardless of the outcome of tomorrow’s vote, the Irish people will continue to suffer harsh budget cuts to education, health care and pensions. EU demands to move swiftly to a balanced budget position by 2015 mean that another four or five years of crippling cuts and zero growth may well turn the 2010s into a Japanese-style lost decade for Ireland.

Although the opinion polls have demonstrated a consistent lead for the “Yes” campaign of eight to 10 percentage points, the large number of undecided voters leaves the outcome still in doubt. Irish voters rejected EU treaties on two of the four last occasions they were given the chance, despite often strong opinion-poll leads in favor of ratification during the campaigns.

Enda Kenny, Ireland’s prime minister, and his colleagues are hoping the electorate won’t turn the vote into a referendum on four years of austerity. If they do, then there’s no hope for approval. An Irish “No” would add to the growing standoff over the EU’s austerity policies, generated by the strong protest vote in Greek elections earlier this month and by French President Francois Hollande’s efforts to shift the policy’s focus toward growth. Even the possibility of default arising from a “No” vote tomorrow would ensure that the Irish question quickly becomes a European one.

(John O’Brennan lectures in European politics and society at the National University of Ireland Maynooth, and is director of the Centre for the Study of Wider Europe. The opinions expressed are his own.)

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To contact the writer of this article: John O’Brennan at john.obrennan@nuim.ie.

To contact the editor responsible for this article: Marc Champion at mchampion7@bloomberg.net.