Devil is in the detail as debt deal campaign intensifies

In public, Berlin continues to insist that “direct recapitalisation of Irish banks is not necessary” and that problems that occurred on the watch of national banking regulators will remain the problem of each member state.

Any further financing requirements, German officials say, can be covered by applications to the ESM bailout fund. Their hard line is rooted in a concern that carte blanche for so-called legacy debt would see the ESM bailout fund haemorrhage capital, creating new stability problems for the euro zone.

In the final analysis, however, German officials familiar with Berlin’s negotiating position concede that concessions will have to be made on all sides on the issue of bank recapitalisation.

The Irish case is “unlikely to be wiped from the table entirely, with some concession possible” this year, according to one informed Berlin source.

But, on bank recapitalisation, Berlin is anxious not to stir up the many bailout critics on the government backbenches.

Klaus-Peter Willisch, a CDU MP from Rheingau near Frankfurt, has voted consistently against all EU-IMF programmes presented to the Bundestag – though he insists this is nothing personal against Ireland.

“If I thought any country would make it, then it was Ireland,” he said. “But once you start down this [bailout] political road, you will always be confronted with requests to improve the terms which people feel obliged to grant rather than admit the strategy was wrong to begin with.”

On Ireland’s promissory note request, he said: “I already have my doubts about everything the ECB’s doing so I would be wary of loosening the terms further.”

In this election year, critical voices can be heard on the opposition banks, too. The Social Democrat (SPD) finance spokesman Carsten Schneider said it is “understandable that the Irish Government insists on the implementation” of last June’s “special treatment” promise to look again at its programme sustainability.

Election promise

With an eye on the upcoming election, however, the SPD has made a campaign promise not to allow any recapitalisations from the ESM fund.

“In that case the bank burdens are distributed among all taxpayers in all of Europe,” said Schneider. “Aggravating Ireland’s case is its unwillingness to talk about its corporate tax or a financial transaction tax. Countries that accept community solidarity but aren’t ready to support community initiatives cannot count on future SPD support for financial assistance.”