Europe's concern is Spanish banks, not Irish
All is not well for Ireland’s hopes of pushing through a bank debt deal, writes DEREK SCALLYin Berlin
ONCE UPON a time, a taoiseach could dine out for a month on a favourable Irish referendum vote.
Just how much times have changed in the euro zone crisis was clear with Germany’s swift dismissal of hopes that Ireland’s Yes to the fiscal treaty would soften Angela Merkel’s No to looking again at Irish banking debt.
As the Government restarts the lobbying efforts it paused for the referendum campaign, it is worth taking a closer look at what it is up against in Germany.
Opposition to addressing Ireland’s bank debt is no mere Merkel doctrine. It is a deep-seated view across the Bundestag, from the government to opposition benches.
Reopening Ireland’s memorandum of understanding would, the German government believes, prompt “me too” demands from Portugal and, particularly, pre-election Greece.
There is also a domestic German problem. The popular understanding here – pushed by Berlin and Dublin alike – is that Ireland is an anti-Greece success story.
Any Irish bank deal would require extra bailout funds, requiring Bundestag approval. Such a vote is not a prospect any MP would relish before returning to their constituencies and bailout-doubting voters.
“You are essentially saying: the Ireland programme is working so well that we need another €50 billion on top,” said a German finance ministry official.
It is precisely this misunderstanding – that all was well in Ireland – that the taoiseach is anxious to address by returning to the banking debt issue with European colleagues.
The hope is to benefit from the fresh wind in European thinking since the election of socialist French president François Hollande.
But Germany’s Social Democrats (SPD), for all its back-slapping of its French ally, remains broadly supportive of Dr Merkel’s EU strategy. On the current concerns over Spanish banks, they both reject any swift bailout rule changes to allow direct financing of financial institutions.
“We reject any talk of direct financing of banks via the ESM before agreement on a whole array of institutional conditions,” said an SPD financial expert. “If Spain needs assistance it knows where it can apply – just as Ireland did: to the existing bailout funds.” This all-out opposition in Berlin bodes ill for Irish hopes of pushing through its own banking debt deal on the coat-tails of a Spanish bank precedent.
Europe is worrying about Spanish banks, not Irish banks. In Germany, meanwhile, the SPD is pushing the government on another front entirely – agreement on some kind of financial transaction tax. Without that concession from Dr Merkel, the SPD is threatening to withhold its crucial Bundestag support for parliamentary ratification of the fiscal treaty.
SPD officials are well aware of Ireland’s opposition to such a tax and are thus reciprocally cool on Ireland’s banking debt request.
Thus even if Dr Merkel lost power next year, there is no certainty that an SPD-lead coalition would change anything.
“Although a window of opportunity has opened with François Hollande, the SPD are afraid to move beyond mainstream opinion here for fear they would later be confronted with the old accusation that they can’t deal responsibly with money,” said Björn Hacker, international policy analyst with the Friedrich Ebert Foundation.
“Instead we have a very German approach to all crises: first we debate the legal implications for the constitution and only in the second step do we we look at whether a proposal on offer makes economic sense.”
The SPD’s cautious, centrist approach is causing some frustration in the party left wing, but also in would-be coalition partners.
The Green Party is the only mainstream voice for direct financing of banks through euro zone bailout funds. But even the Greens are wary of allowing any ESM rule-change apply retroactively to relieve Ireland of its banking debt.
“It is important for us that we get the current crisis – Spain – under control,” said one Green Party financial analyst. “Ireland is simply not the focus and, when it is, it gives the impression of a country that is coping well.”
Which brings us full circle. The Government’s main barrier in Germany to a banking debt deal is far broader than Angela Merkel.
And to prioritise the banking debt issue around Europe, it needs to re-engineer understanding of Ireland’s bailout progress without tarnishing its hard-won image ahead of next year’s planned return to financial markets.