All eyes on Berlin as bailout exit strategy takes shape
Key questions over Ireland’s exit from the bailout remain to be settled
Even though Angela Merkel was quick to signal that there will be no change in her core policy towards Ireland, her choice of finance minister will be important nonetheless. Photograph: Krisztian Bocsi/Bloomberg
Angela Merkel’s election victory sparked immediate chatter on Merrion Street as to what happens next in her finance ministry. At issue is whether the veteran Wolfgang Schäuble makes way for someone else or stays in the post.
The bargaining to come in the chancellery will be closely followed in Dublin. Some reports point to Schäuble’s survival. Another reading suggests he may be replaced by ECB executive board member Jörg Asmussen, though close observers say that’s probably a bit of a stretch.
Why does any of this matter? Because key questions over Ireland’s exit from the bailout remain to be settled. Even though Merkel was quick to signal that there will be no change in her core policy towards Ireland, her choice of finance minister will be important nonetheless.
Schäuble is as dogged as he is dogmatic. The question now arises as to whether Merkel’s likely partners in the Social Democratic Party demand someone else with a more pragmatic style. Whatever happens, it is a decisive mark of where we are right now that the political manoeuvring in Berlin registers so strongly here.
After all, the Government must soon decide whether it should seek an emergency credit line to hold in reserve as a guard against any sudden loss of market confidence after the bailout. Impending too is another round of European talks on measures to resolve failing banks, something which could present a fresh opportunity for the Irish campaign to ease bank rescue costs.
Remember this? In July, Minister for Finance Michael Noonan said he would like to agree a “back-stop” arrangement with EU partners and the International Monetary Fund for the end of the bailout in December. This would essentially be a 12-month overdraft, the objective being that the facility would never actually be used.
Noonan was clear enough then but things don’t look that certain now. Election talk in Germany of a “clean break” from the Irish bailout seems to have triggered second thoughts in Dublin as to whether a credit line ought be sought after all. The sense all along was that the Germans would rather provide an Irish safety net, just in case. No longer.
Now that the election is done, the Government is to take soundings in coming weeks as to whether such a programme is a runner at all. Views expressed in Berlin, Brussels and Paris will be crucial. So too will be the feedback from Luxembourg, home of the European Stability Mechanism, the permanent bailout fund from which any credit line would be drawn.
There are many potential benefits, but there are drawbacks too.
On the plus side, a credit line could provide an additional layer of confidence as the Government makes its full return to private bond markets.