Carefully managed Irish bailout exit loses its sheen amid political disquiet in Brussels

Analysis: there is concern that gratitude has not been to the fore of the Irish narrative

European Commission president José Manuel Barroso: complained that the euro was the victim of malpractice in Dublin banks. Photograph: EPA/Julien Warnand

European Commission president José Manuel Barroso: complained that the euro was the victim of malpractice in Dublin banks. Photograph: EPA/Julien Warnand

Sat, Dec 21, 2013, 01:00

Taoiseach Enda Kenny’s final visit of the year to Brussels wasn’t supposed to turn out like this.

Only days after the end of the EU-IMF rescue programme, European Commission president José Manuel Barroso raised fresh doubt over Ireland’s campaign for more bank debt relief. Clarifications followed, suggesting all is not lost. But the episode took some of the sheen off the carefully managed bailout exit. It is also a result of political disquiet in Brussels at a perceived lack of adequate recognition in Dublin for the solidarity shown to Ireland during the bailout.

So what exactly is going on? Asked at the EU summit about Ireland’s claim for compensation for historic banking debts within the banking union initiative, Barroso said decisions taken were for the future and were not retroactive.

This smacked of change, as the commission has supported Irish demands for help to deal with “legacy” banking debts. It was also at odds with the Government’s insistence that the question remains live, albeit on a longer horizon than Kenny would wish.

Amid discord in Dublin and Opposition claims of “betrayal” in Brussels, the commission sought to clarify the matter yesterday by saying Barroso was not in fact referring to the legacy debt question.

Rather he was dealing with something else entirely, namely a deal this week where finance ministers agreed terms for a new Single Resolution Mechanism (SRM) in which funds built up from a future levy on all banks would be used to settle future banking crises.

This was distinct from powers already given to the European Stability Mechanism (ESM) bailout fund to recapitalise stricken banks directly. This is the focus of the Government’s campaign, following a deal by EU leaders in June 2012 to break the link between bank and sovereign debt. However, Germany and its allies are still resisting deployment of such aid for Ireland. “The president really said nothing new last night. When he was talking about the SRM he was talking about the future,” said Barroso’s official spokeswoman.

The implication was that there was no setback for Ireland because direct bank recapitalisation is the responsibility of the ESM, not the SRM.

‘Separate processes’
Kenny’s argument was more or less the same. “There are two separate processes here,” the Taoiseach told reporters. “The decision made on June 29th last year is unchanged, still stands and continues to hold out the possibility of the direct recapitalisation of banks.The Single Resolution Mechanism, the single resolution fund, is a matter for the future.”

In spite of Germany’s insistence that it did not agree to retrospective aid, the European powers are working to have ESM procedures for direct recapitalisation in place next November. This still constitutes a serious challenge for the Kenny administration. The question remains “in play” from Dublin’s perspective, but nothing is going to happen without a turnaround by Germ- an chancellor Angela Merkel. There is no sign of that, leading to a sense in Brussels that the question is essentially frozen.

News - direct to your inbox

Which Daily Digest would you like?

Politics on Twitter