Kenny strikes at right time for good result in Europe
Taking Ireland’s bank debt off the national balance sheet will have a huge impact on our debt-to-GDP ratio
BEFORE HEADING off to Brussels for this week’s crucial EU summit Enda Kenny stressed that patience and timing were essential in the pursuit of a better deal on Ireland’s bank debt.
At that stage he was aware that Italian prime minister Mario Monti was shaping up for a do-or-die battle to wrest concessions from German chancellor Angela Merkel to save the Italian and Spanish economies from being shut out of access to borrowing.
Finding an opportunity to use that confrontation to press the Irish case for changes in the bank debt terms was the challenge facing the Taoiseach going into the meeting.
Kenny and his Minister for Finance Michael Noonan had for some time been resisting political and media pressure at home to stage a public confrontation with our EU partners over Ireland’s bank debt.
Instead Kenny bided his time and waited for events to present an opportunity to win a concession on the bank debt. Just as the Greek crisis last year opened up an opportunity to get a reduced interest rate on the sovereign debt, the Spanish banking crisis created an opportunity on the banking side.
From the beginning of the Spanish banking crisis Kenny has been calling for direct investment from the European Stability Mechanism into the troubled banks rather than having it channelled through the sovereign state as happened in Ireland.
If a new approach was taken with regard to Spain the obvious knock-on effect was that the Irish situation would have to be revisited.
The big play at the summit was made by Monti, who was determined to force a change of policy by the EU to ensure that Italy would be able to continue borrowing on the bond markets.
In the weeks running up to the summit he built a strong network of support across the euro zone for a showdown on the issue if necessary. Ironically the German chancellor, who had played such an important role in installing Monti as Italian prime minister in place of the discredited Silvio Berlusconi, found that he had developed into her most formidable opponent.
The election of François Hollande as French president also played its part in changing the dynamic. Together with Monti and Spanish prime minister Mariano Rajoy a formidable front was presented to Merkel.
The first stage of the summit involved all 27 EU leaders discussing the growth pact being promoted by Hollande. There was no major disagreement on the terms although the Italians and Spanish insisted that they would only agree to it if there was also a deal on bank debt.
After dinner the 17 euro zone leaders negotiated into the early hours on the bank issue as the other EU prime ministers went off to bed. It was during this critical phase of the talks that Merkel was persuaded to make the crucial concession in principle to differentiate between sovereign and bank debt.
Kenny intervened at this stage of the meeting to insist that Ireland should be allowed to claim the same concession retrospectively and Merkel did not demur.