'Committment' to cutting debt link

The Government today insisted the EU was committed to enabling Ireland to break the link between bank debt and sovereign debt despite demands from Germany, Finland and The Netherlands that national bodies remain liable for most bank losses.

Irish ambassadors as well as senior Dublin-based officials are urgently making contact to follow up on developments following the statement by Germany, Finland and the Netherlands on Ireland’s bank debt, Minister for Finance Michael Noonan told the Dáil today.

He insisted that work was continuing in line with the June 29th EU summit agreement to break the links between bank and sovereign debt and the principle that similar cases would be treated equally.

Mr Noonan said the EU Commission had this morning set out that the June agreement was clear regarding the ESM and breaking the “vicious cycle” between sovereign and banking debt.

“We are engaged in a diplomatic offensive to implement the decision of June 29th, to break the link between the banks and the sovereigns and to enhance the sustainability of our debt,’’ he added.

Mr Noonan said that in the nature of EU business there might be differences of interpretation. “One thing is clear: the principle of breaking the link between the sovereigns and the banks has been agreed by the heads of state of government,’’ he added. “No one has questioned that.’’

The Minister was replying to Fianna Fáil spokesman on finance Michael McGrath, who said the statement from the ministers for finance in Germany, the Netherlands and Finland could only be seen as a major setback to the efforts to secure an overall deal on bank debt.

It was all very fine for the Taoiseach to say earlier that the summit statement from last June stood, he said, adding: “But that is no good to Ireland unless it is implemented.

"The bottom line is that the summit statement will not be implemented without the support of the Germans, the Dutch and the Finns."

Mr McGrath said the noises coming from Berlin had not been favourable for some time. "Minister, if there is no deal on bank debt, it changes everything," he added.

He said this would jeopardise the State's ability to exit the bailout and return to the markets, mean tougher budgets in the years ahead, while Ireland’s debt position would become unsustainable, in his view, in the absence of economic growth.

Earlier today, Leaders’ Questions in the Dáil was completely taken up with reaction to the demand by finance ministers from Germany, Finland and the Netherlands that the European Stability Mechanism should not take responsibility for bank losses that occurred before it was established.

Irish bond yields crept higher in the aftermath of the statement.

There was heavy criticism of the Department of Finance with Independent TD and Technical Group spokesman Shane Ross describing it as “farcical” that the Department had welcomed the intervention by the three countries.

Deputy Ross asked the Taoiseach if he had advance knowledge of the department’s comment. Enda Kenny replied that he had not.

Congratulating the Taoiseach on “a very straight reply”, Deputy Ross went on to say: “We’re getting nothing back from Europe for being good Europeans.” He added: “Someone should be fired out of the Department of Finance immediately.”

Mr Kenny told the Dáil that the decision of June 29th “was clear, is clear”. He added: “As far as I’m concerned we want to see the clear decision and mandate of the European Council implemented.”

Sinn Féin’s Mary Lou McDonald said that, if the message wasn’t “drop dead” it was certainly “get lost”.

“You haven’t followed through,” she told the Taoiseach, accusing him of failing to seize the opportunity created by the June 29th European Council statement.

Mr Kenny said he had held talks with three EU prime ministers in Rome last week, Mr Mario Monti from Italy, Mariano Rajoy from Spain and Antonis Samaras from Greece.

Mr Martin said the statement from Germany, Finland and Holland was a “grave disappointment” and “extremely depressing”. “Had you any inkling at all that it was coming?” he asked the Taoiseach.

Mr Kenny said that “statements can be made from different perspectives” but he highlighted the importance of the European Council statement of June 29th.

However, Fianna Fáil leader Micheál Martin said in the Dáil this morning that three powerful EU member-states had told Ireland to “drop dead”.

Germany, Finland and The Netherlands are insisting that governments remain on the hook for loss-making legacy assets even after any bank rescues by the ESM fund. This demand, laid down by the countries’ finance ministers, is in apparent defiance of the decision by EU leaders in June to break the link between sovereign and bank debt.