Irish “yes” to give euro zone scant respite

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Ireland was poised to announce a “yes” vote to a European budget discipline treaty on Friday, but the referendum result brings little respite to a euro zone tormented by doubts over Greece's future in the currency bloc and Spain's wobbly banks.

Irish European Affairs Minister Lucinda Creighton said she was “very, very confident”, based on early counts, that the fiscal pact had been passed in the only plebiscite on the treaty in the 17-nation euro area.

Two government sources told Reuters after voting ended late on Thursday that the treaty, meant to enforce EU deficit cutting rules more strictly to prevent a repetition of the sovereign debt crisis, was likely to pass by a margin of more than three to two, citing polling data.

Financial markets had discounted the Irish vote and are far more worried about a second general election in Greece and accelerating capital flight from Spain, which is resisting pressure to seek international assistance for its banks.

World stocks and the euro dipped anew on Friday after suffering their largest monthly fall for eight months in May, while and safe-haven government debt yields dropped to record lows.

Spain said on Thursday investors had moved a record net 66.4 billion euros ($82 billion) out of the country in March alone, before the sudden nationalisation of ailing lender Bankia , its fourth-largest bank.

A government source said on Friday the cabinet had delayed by at least a week the adoption of a new mechanism for funding Spain's autonomous regions. Their overspending has been a big factor in the country's fiscal problems, along with mountains of debt owed to savings banks after a property bubble burst.

Those fears helped drive German bond yields to all-time lows, meaning investors are effectively paying Berlin to park their money in its coffers at negative interest rates while the borrowing costs of Spain and Italy are becoming prohibitive.

The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose on Friday to its highest since the launch of the euro at 546 basis points.

The European Union's top economic official said the euro zone faced a choice between degenerating or strengthening, keeping up pressure on the region's leaders to take more radical steps to overcome the debt crisis.

“We face either a gradual degeneration of the euro area or a strengthening of Europe's basis, that is the economic union,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a speech in Helsinki.

The European Commission, the European Central Bank and the International Monetary Fund have stepped up pressure on euro- zone leaders to adopt bold steps, such as a banking union and a joint deposit guarantee, to ensure the euro zone's survival.

But EU paymaster Germany, keen to limit liabilities to its own taxpayers, has so far resisted such moves.

CONTRADICTORY POLLS

Contradictory final opinion polls ahead of the June 17 election in Greece, the euro zone's most heavily indebted state, pointed to a knife-edge race between supporters and opponents of the tough terms of Athens' EU/IMF bailout.

A victory for the anti-austerity leftist SYRIZA party, which wants to tear up the bailout agreement, could lead to the country being forced out of the euro.

Most polls show the conservative pro-bailout New Democracy party narrowly ahead of SYRIZA, one day before a ban on their publication comes into force.

But one survey by the respected Public Issue agency gave the leftist group led by charismatic Alexis Tsipras a six-point lead, reflecting the angry and unpredictable mood of voters exasperated with austerity and soaring unemployment but still keen to stay in the euro area.

Greece's electoral system provides a huge bonus of an extra 50 parliamentary seats to the winning party, making it almost impossible for rivals to form a government without it.

In the Netherlands, a court rejected an attempt by eurosceptic politician Geert Wilders to block a Dutch parliamentary vote on a permanent bailout fund for the euro zone, due to enter into force next month.

Legal experts had expected Wilders' bid to fail, but it could bolster his Freedom Party's image as an anti-austerity force in parliamentary elections in September.

An opinion poll this week showed his anti-euro, anti-Islam PVV had overtaken Prime Minister Mark Rutte's liberal party and was running second to the far-left anti-austerity Socialist party, in a sign that one of the core backers of orthodox fiscal policy in the euro zone faces a potential political earthquake. - Reuters