If the recap never comes

Cantillon: Officials in Dublin nonplussed by the smoke signals, black or white, coming from Berlin

     Like the Garth Brooks concerts, Ireland’s hopes of a bank debt deal is an expensive endeavour that was always subject to approval.

Like the Garth Brooks concerts, Ireland’s hopes of a bank debt deal is an expensive endeavour that was always subject to approval.

Sat, Jul 12, 2014, 01:00

Like the Garth Brooks concerts, Ireland’s hopes of a bank debt deal is an expensive endeavour that was always subject to approval.

On Wednesday Angela Merkel’s two-year-old political chickens came home to roost when her cabinet backed draft legislation to decouple future bank bailouts from national finances.

A three-page finance ministry statement noted in its final paragraph that the cabinet had backed ESM rule changes to allow direct bank recapitalisations.

The lack of fanfare is no surprise: the ESM permanent bailout fund is viewed with suspicion in Germany. Expanding the fund’s capabilities to allow direct recapitalisations must be be done discreetly to avoid a Bundestag revolt.

German MPs were annoyed that Merkel agreed to ESM recapitalisations in June 2012, suggesting that concession went beyond the negotiating mandate they gave her before the summit.

To placate parliament, and limit recapitalisations, Berlin demanded an ESM “liability cascade” – a series of bailout hurdles before banks can tap the bailout fund.

German parliamentarians are placated, but still worry this is just another well-intentioned step on the road to mutualised debt hell.

Thus their message to the chancellery this week: we will back the principle of ESM recapitalisations but only as a fig leaf to spare your blushes in Brussels. Don’t even think about coming to us with a recap request – never mind a retrospective one from Ireland.

Officials in Dublin are nonplussed by the smoke signals, black or white, coming from Berlin. Their crisis-era dealings with Merkel show that her final answer to requests is always less absolute than her initial, usually negative, response.

From smoothing out bailout repayments to the promissory note deal, a lot has happened for Ireland that in Berlin was once “verboten”.

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