It Ain't Over Yet: Why Ireland's EU Treaty Vote Won't Solve Its Debt Crisis

A higher-than-expected 60.3 percent voted yes in the euro zone's only national referendum on the fiscal pact, a binding agreement which will tie the 25 signatories to hard budget targets and fine them if the fall short.

The result was, in fact, never in doubt. Despite a strong showing from opposition party Sinn Fein, bellwether polls suggested an overwhelming majority would support the treaty as early as last weekend.

But nonetheless, the stakes were incredibly high.

A rejection of the treaty would have not only barred Ireland from emergency funding under the European Stability Mechanism -- something the country has come to rely on as it struggles to manage its crippling national debt -- but also destroyed any hope German Chancellor Angela Merkel had of winning the fight for austerity as the ideological tone of European economic policy.

The ratification sends a clear message to the markets that Ireland is serious about cutting its deficit and is not afraid to continue down the hard road to do so.

But while Irish Prime Minister Enda Kenny, who fought hard for the yes campaign, will be celebrating alongside Merkel tonight, they may want to pass on the champagne.

The troubles for Ireland may just be beginning.

The €85 billion IMF / E.U. bailout that has so far allowed the country to fund basic services will run out at the end of 2013.

After that, the government wants to seek funds from the market again.

But with a Greek debt default looking increasingly likely, not to mention the dire state of Spanish banks and the threat of euro contagion spreading to Portugal and Italy, whether investors are actually willing to buy Irish notes by the end of next year is anyone's guess.

Indeed, two-year borrowing costs for Ireland have already risen to levels similar to 10-year bond yields.

Yields on its 2020 bonds, previously at an 18-month low of 6.67 percent, shot up 60 basis points to 7.43 percent after May's Greek election results.

And the situation is set to get worse.

 If Greece does indeed exit the euro, then according to Sonia Pangusion from IHS Global Insight, the cost of borrowing for Ireland will soar to untenable levels.

If that happens, Ireland will be forced to ask for another bailout.

The higher the probability of Greece leaving the euro, the higher the probability of Ireland having to ask for a second bailout, Pangusion said.

The sad irony is that Ireland is not one of the so-called Mediterranean basket-case countries.

Dutifully soldiering on with the deeply unpopular austerity budget, Ireland was the poster child of conformity and fiscal discipline.

Unemployment was down slightly to 14.2 percent from 14.3 percent in December, and Dublin had also avoided damaging ratings downgrades by Fitch and S&P.

There is a strong underlying economy, one that investors recognized, and it was on target to reach its bailout targets.

In short, Ireland followed the strict diet of tax raises, welfare cuts and reduced spending prescribed by the E.U./ IMF to the letter.

In the minds of investors, Pangusion added, Ireland seemed to have detached from the rest of the PIIGS [Portugal, Ireland, Italy, Greece and Spain].

But it seems increasingly likely, as France's new president and self-proclaimed leader of the growth rebellion Francois Hollande has been advocating, austerity and fiscal restraint means nothing to the markets if the rest of the euro zone is headed towards financial ruin.