Debt solution likely to prove elusive at latest EU leader summit

EUROPEAN DIARY:THE EU won the Nobel Peace Prize last week. If the euro zone is to overcome the debt saga, the union may need to win a Nobel award for alchemy first.

As these things go, the two-day summit beginning this evening in Brussels is unlikely to be a whopper. With clarity still lacking over the next move for Spain and Greece, there is little anticipation that the gathering will deliver a decisive step forward.

“There’s been a deliberate attempt to make sure that expectations are not too high here,” said a senior diplomat.

This means Taoiseach Enda Kenny will have to wait another day for any deal to ease the burden of the banking debt.

With Germany set to enter election mode in the new year, in question now is whether any appreciable progress can be made before then. It is a given at this point that Chancellor Angela Merkel’s scope will narrow all the time until polling day next September.

If that seems like a frightfully long time to wait, the lady in Berlin is no mood to rush. Events may conspire to force movement but there can be no certainty of that.

Still, the expectation remains that Spain will seek a new aid programme for its banks in the coming weeks. That might yet provide an opening for Kenny, but don’t bet on it.

The sense of drift is in contrast to the apparent progress made when EU leaders resolved at their last summit, in June, to break the bind between sovereign and bank debt.

Although there was a direct reference to Ireland at that time, whatever sense of urgency there was back then has since receded.

It may be apt at this point to recall the sequencing.

The June summit opened the door for the direct recapitalisation of banks by the European Stability Mechanism. This deal was made in anticipation of an imminent request for such aid from Spain.

At that time, Kenny prised a pledge from his counterparts that similar cases would be treated equally in the event of any ESM interventions. The leaders also promised to further improve the sustainability of the Irish rescue programme.

Weeks later, economics commissioner Olli Rehn raised the prospect of a deal this month. “As journalists you know that it’s the deadlines that run the world so it’s important that we have a very clear timeline,” he said on July 10th after meeting finance ministers.

It didn’t work out that way. Hopes for a speedy resolution were already fading when the German, Finnish and Dutch ministers declared in Helsinki that national bodies would remain responsible for historic banking debts. This was a clear setback for Kenny, who has insisted that it was the understanding in June that the ESM would bear legacy debts.