Little appetite in ECB to take bite out of Irish bank debt
ANALYSIS:If Kenny were to draw a link between the treaty and the banks, he would be setting himself up for a fall
IN SPITE of periodic claims of meaningful progress in the Government’s drive to cut the cost of its mountainous bank debt, its long-running campaign appears to be making little headway.
There is no doubt that a robust case can be made in favour of cutting the excruciatingly high cost of rescuing the former Anglo Irish Bank and the former Irish Nationwide. No matter what claims are made about the debt being sustainable in the long run, it remains the case that an appreciable reduction would improve the financial outlook.
With two of the most crucial constituencies, however, Irish negotiators do not appear to be winning the argument. Technical studies continue at the level of the EU-ECB-IMF “troika” but Germany is sceptical, and so too is the European Central Bank.
It is in the way of things in the euro zone that there can be no deal without them.
In political real time, of course, Taoiseach Enda Kenny and his administration are engaged in a difficult referendum battle to ensure the fiscal treaty is passed.
Although Minister for Social Protection Joan Burton seized on what she said was an opportunity to extract better banking terms from Europe, Kenny wisely cut her off. By drawing any link between the treaty and the banks at this stage, the Taoiseach would be setting himself up for a fall. Given the scale of the Irish bank bailout, it is also arguable that any concession on Anglo would be rubbished as wholly insufficient.
Whether other considerations enter the frame in the weeks ahead can only be guessed at. For the moment at least, no breakthrough seems imminent.
Observers question whether it is a good idea for the Government to make great play of the issue at this time. After all, notional Irish borrowing costs have come down significantly and the Government has managed to dip a toe in debt markets. The sense remains that Ireland’s recovery prospects are much better than those of Greece and Portugal.
ECB president Mario Draghi applauded the progress yesterday, saying “past experience is reassuring” in terms of delivering future commitments under the Irish plan. While saying “we also are aware that there are certain fragilities that need to be taken care of”, he gave no indication that relief for the banks was in prospect.
Au contraire, it would seem. The view of the hardliners in Frankfurt remains that Ireland’s stricken banks are the beneficiaries of extraordinary central bank largesse and that this is not fully taken into account in Irish debate. The argument further goes that such support is at the outer limits of what is permissible within the ambit of the EU treaties, which forbid monetary financing of member states by the ECB.
This helps explain the ECB’s preference to reduce its extraordinary exposure to Ireland rather than increase it, as might be the case under some of the proposals to ease the Anglo/Nationwide burden. With more than €1 trillion in ultra-cheap ECB three-year liquidity sloshing around Europe’s banking system, there is concern within the central bank to keep its expanding balance sheet under control.
In the maw of a referendum, the argument that public pay and welfare entitlements in Ireland are too high is hardly a ticket to popularity. In some European quarters, however, the concern remains that the Government is going to have to confront the Croke Park deal sooner or later.
With unemployment still woefully high, the case is quietly made that the present minimum wage and public pay levels generally mitigate against job creation. For obvious reasons, such arguments do not go down well in Government circles.