France supports Irish bid for banking-debt agreement

French president François Hollande today said he supports Ireland's campaign to have old bank debt covered by recapitalisations through the euro zone's new rescue fund.

Mr Hollande said Ireland was "a special case" and must be treated as such when euro group finance ministers negotiate a deal on how to break the link between sovereign and bank debt over the coming months.

German chancellor Angela Merkel caused consternation in Dublin last Friday when she said "legacy" debt would not be covered by the European Stability Mechanism (ESM) bailout fund, echoing remarks made last month by her finance minister and apparently threatening Ireland's long-running efforts to secure an EU deal to ease its multibillion-euro bank debt burden.

However, she and Taoiseach Enda Kenny issued a joint statement yesterday affirming that Ireland's bank rescue was a "special case" and that euro zone leaders would examine ways of improving it.

After a 50-minute meeting with Mr Kenny at the Élysée Palace in Paris this afternoon, Mr Hollande pledged his support for Ireland's position.

"The Irish specificity is that for several months there had already been a recapitalisation of banks through the budget, which further exacerbated Ireland's debt and forced it to impose a tough austerity program," Mr Hollande remarked.

"I said Ireland was a special case and should be treated as such."

Asked by The Irish Times if this meant he agreed with the Irish position that bank recapitalisations through the ESM should be retroactive, the French president said: "Yes. Ireland is asking that its specific situation should be taken into account - that it had to recapitalise its banks with its own means. The Eurogroup will take this specificity into account."

Mr Kenny said that what made Ireland a special case was the fact that it had a European position "imposed upon it" when the banking sector collapsed.

"Ireland was the first and only country which had a European position imposed upon it, in the sense that there wasn't the opportunity if the Government wished to do it their way by burning bondholders.

"The Irish public and Irish taxpayer were required to service the full extent of the debt, which was a situation which we're trying to reduce by the negotiations which are going on."

Mr Kenny's visit to Paris was his first as Taoiseach, reflecting an improvement in relations between France and Ireland since Mr Hollande came to power in May. He is also attending a major food fair in Villepinte, near Paris, underlining France's importance as one of Ireland's main export markets.

Mr Hollande confirmed that he would receive President Michael D Higgins in Paris next February.

This afternoon, Minister for Finance Michael Noonan said if a bank-debt deal can be reached, it would not affect this year’s budget.

He said it was made clear during the June euro zone meeting that any move on bank recapitalisation would only happen after an EU-wide banking supervisory body was in place. “We are looking well into next year, quite clearly after the budget….[but] If we get a resolution which makes the debt more sustainable obviously that improves budgets in the future,” Mr Noonan added.

Earlier, Tánaiste Eamon Gilmore said the joint statement made it clear that Ireland is being treated as a “special case” in Europe. He said the deal on Ireland’s bank debt “was never off track” although he conceded there was “concern” at Government level on Friday after Dr Merkel dismissed retrospective recapitalisation of banks in response to a question about the Spanish situation.

“The issuing of a joint communiqué . . . puts the issue beyond any doubt that Ireland’s case being treated as special,” he said.

He said contacts between Berlin and Dublin began immediately after Dr Merkel’s comments on Friday and continued at very senior diplomatic level over the weekend, culminating in a telephone discussion between Dr Merkel and Mr Kenny and the issuing of the communiqué.

Mr Gilmore was speaking at the UCD Michael Smurfit Graduate Business School, where he was attending the Africa Ireland Economic Forum. He said the statement issued last night was perfectly consistent with what was agreed in June by European heads of State. He said there was political support for efforts to work through Ireland’s debt problem in European capitals, including Berlin.

He stressed the statement was clear that Ireland’s case was special. “There’s a very strong view that Europe needs a winner and needs a country to come out of the programme and Ireland is the best-placed country to do that.”