ForexSpace.com - Just ahead of Ireland holding its referendum on the Fiscal Treaty, forex traders will be interested to hear that the country’s month-on-month retail sales fell 1.5 percent in April, the largest fall in six months. With the early euphoria associated with the European single currency in 2002 long since dissipated, this coming Thursday will give voters in the Irish Republic a chance to go to the polls and register their vote on whether to back the European Fiscal Treaty, which would give EU more power over the country's economy. Those countries using the currency were supposed to comply with rules about controlling their debt. However, few did, not even Germany. Consequently, euro zone states now have to agree to a new financial deal, either by raising taxes or cutting public spending, or even a blend of both.  Failure to comply could trigger fines by the European Court for endangering the euro, with the ultimate sanction being ejection from the currency bloc altogether. In this respect, Colm McCarthy (pictured), who lectures in economics at University College Dublin, says it would be madness for Ireland to leave the euro, but it should never joined in the first place.

"Adoption here of a common currency sparked a classic regional banking bubble; interest rates fell and credit availability went well up," he says. "The government didn't or couldn't do anything about it." Nor can states' spending in future depend on irregular taxes such as stamp duty, which the Republic relied on during its property bubble. As it is, McCarthy foresees Ireland facing years of austerity, no matter what its citizens vote.

"The downside to voting No is that in the event that the Irish government don't <sic> get back into the bond markets next year - and I think it will be very difficult - an alternative European source of funding isn't going to be available," he says. "To me it's a no-brainer."

Experimental Clones

With more and more taxes proposed, many Irish are confused and angry about the cost of propping up the banks, which helped cause so many of the Republic's problems. They are also fearful about the future and worried about what might happen next; the vote could come down to the conflicting emotions of fear versus anger.

Which is why, a few days before the crucial referendum, an experiment in the southern Irish town of Clones, close to the Northern Ireland border, will be eyed with more than mere curiosity. Shops and bars there are now accepting the pre-euro currency - the punt. Clones, ravaged by Ireland’s catastrophic economic slump, has embarked on an ingenious exploitation of a financial loophole which deems that an estimated 285m punts, variously held in latent bank accounts, stuffed under Irish mattresses, inside piggy banks and kept as souvenirs, are still legal currency. Holders of the punts are invited to visit Clones and hand them over in exchange for vouchers which are then usable at any of the 45 businesses that have signed up for the scheme, similar to one in Spain that resurrected the old peseta as an alternative to the euro. The scheme offers to take old punts at an exchange rate of 1 to €1.20. They then sell the punts back to the Irish Central Bank at a rate of 1 punt to €1.27.

But despite the unexpected boost, the signs of the Irish economic crash are still stark along Clones' main thoroughfare. Finbarr Dunwoody, the president of Clones Chamber of Commerce, points to the boarded up shops as and the many for sale and to let signs. Dunwoody, speaking this morning to the Guardian newspaper, displays the kind of ambivalence towards the single currency and the EU treaty that should worry the pro-European government urging a yes vote back in Dublin.

"Isn't it a real sign of the times that a town like Clones has to examine the potential of bringing back the old currency?" Dunwoody says. "Maybe it's a flavour of what's to come, maybe it's a little warning to Brussels that the likes of Clones and indeed Ireland may have to find their own way out of this mess. I would hate to see us leaving the euro – we got a 20 percent boost to our economy when we joined – but who's to say? I am wavering on the yes-no – one day I'm yes and one day I'm no. I've not made up my mind yet.”

Drew Hillier. Editor