Ireland as a special case
THE GOVERNMENT’S negotiations to reduce Ireland’s public indebtedness suffered a setback following Chancellor Angela Merkel’s intervention after last week’s European Council. She told a press conference there would be “no retroactive direct recapitalisation” of Spanish banks. However last night’s joint communique from the Chancellor and Taoiseach cleared the air somewhat with its reference to “Ireland is a special case”.
Given Ms Merkel’s earlier statement on Spain there was understandable concern that it ruled out relieving any of the sovereign debt used to rescue major Irish banks. That this debt is unsustainable is clear. Securing relief requires smart and hard Irish multilateral negotiations in a wider political setting.
In that sense little has changed as a result of this EU summit. The progress registered by Taoiseach Enda Kenny on a deadline for the European Central Bank to supervise euro zone banks by the end of the year is significant, even though the details will take more time to work out. So is agreement by Germany to include all banks and not only systemically large ones in the exercise. Ms Merkel’s reference to retrospective debts repeats what was previously said by German ministers along with their Dutch and Finnish colleagues. The legacy issue was not dealt with substantively at this summit – nor at the June one – but the June decision to break the link between sovereign and bank debt was reiterated. It remains to be negotiated out over coming months, including during Ireland’s EU presidency beginning in January.
That multilateral responsibility should sharpen political and popular understanding in Ireland about the issues at stake. Short of withdrawing from the euro, for which there is no appreciable public support, securing debt relief involves taking advantage of a rapidly changing and conflicted political environment in the EU and the euro zone. The emerging alliance of France with Italy and Spain in negotiating a more effective and durable architecture for the common currency offers obvious openings for Ireland to press its case for equal treatment in any debt relief and in linking that to the larger case for mutualising debt through Eurobonds as these states are now demanding.
Germany is a central player in this drama, but not an altogether dominant one. Its reluctance to accept hegemonic leadership in the EU is as much a feature of its current stance as its frustratingly introspective politics, now reinforced by the forthcoming federal elections next year. European questions are becoming much more salient in its domestic politics and it too is having to face up to how the costs of securing an effective euro measure up against the much greater costs of seeing it fragment or collapse. As a result its position can develop and change. The Government needs to press its case about the unsustainability of Irish – and European – public debt more openly and clearly. It needs to cultivate allies in doing so. And it must link its case more smartly to the search for wider economic and political change in the EU.