Irish debt relief hopes slide down Berlin's agenda

THE REPUBLIC’S hopes of securing bank debt relief has slipped further down Germany’s political agenda.

Irish Government officials are working the back rooms of Europe’s capitals, trying to put flesh on the bones of a June promise by European Union leaders to look again at Ireland’s bailout programme.

But German chancellor Angela Merkel indicated yesterday that agreement on such a deal is so far away that it has yet to even come near her chancellery, let alone cross her desk, for discussion.

“There’s no change on my agenda at the moment,” she said.

Occupying her autumn agenda instead, she said, was how to keep Spain and Greece off the rocks and wind in the sails of Europe’s integration efforts. Seven years in office and three interlinked crises – banking, economic and euro zone – have left their mark on Germany’s chancellor. Dr Merkel is far less fresh-faced than in 2005, but her stamina remains as remarkable as her political popularity. A poll for Der Spiegel shows her as Germany’s most popular politician, with two-thirds support.

Dr Merkel wants a clear run at a third term next year, piling pressure on EU leaders at three summits between now and Christmas.

Days after Germany’s constitutional court backed the ESM bailout fund and the fiscal treaty, Dr Merkel said she was anxious to discuss with EU leaders “whether we need more commitment” on fiscal and financial affairs.

She is angling towards talks on a new European treaty, something Berlin’s exhausted partners want to put on the long finger. The roles are reversed when it comes to the latest euro zone crisis initiative: a European banking regulator.

Many European countries, led by France and Spain, are anxious to press ahead with a big-bang regulator to oversee 6,000 European banks. That would open the door to a direct recapitalisation of Spain’s banks from the ESM fund. Berlin, however, is on a go-slow. It wants European oversight for just 25 systemic banks. And political disagreement on this point, it believes, precludes discussing practical measures such as hiring employees, finding premises or, crucially, Spain’s hopes of swift bank recapitalisation.

“First we need a regulator with powers to intervene, then we can talk about the recapitalisation of banks,” said Dr Merkel. “That is the order, and it is inalterable.”

This stand-off between Spain and Berlin will hold up political agreement on any debt relief for the Republic. But having a Spanish smokescreen might be no bad thing for the Government if it obscures a lack of agreement on its own deal.