Kenny calls on EU leaders to honour word on debt link

Taoiseach Enda Kenny has urged EU leaders to fulfil their pledge to break the loop between sovereign and bank debt, saying such action is crucial for the sustainability of Ireland's return to markets.

In a letter last night to his European counterparts, Mr Kenny also said debate on the best options for Ireland after the bailout ends in December was "finely balanced" from Dublin's view and that of the EU. His intervention, on the eve of an EU summit tonight in Brussels, comes as the Coalition steps up talks with the EU-IMF troika on an emergency credit line to guard against any sudden loss of investor confidence after the bailout.

At issue is the extent of the conditions that would be tied to such aid, Ireland’s objective being to minimise them.

Open-minded Coalition
At the same time, the Government insists that it has an open mind as to whether it seeks access to a credit line or decides to go it alone when returning to private-market financing.

But his renewed demand to cut the link between bank and sovereign debt may serve to reinforce Ireland's negotiating position on any precautionary loan programme. Although EU leaders promised last year to use the European Stability Mechanism bailout fund to rescue stricken lenders, Germany and its allies are still resisting the notion of aid for historic banking debts.

The Taoiseach called for the implementation of all political commitments made by European leaders, saying Ireland and other states relied on EU and euro zone stability to anchor the “fragile” recovery.

'Vicious circle'
"It remains imperative, as we all agreed in June 2012, to break the 'vicious circle' between bank and sovereign debts that forced Ireland into a

programme in 2010, at a time when there was a different consensus in Europe on the merits of 'bailing in' creditors of failed banks," said Mr Kenny in his letter.

“That shared task, indeed all the commitments we made then, remain to be fulfilled and are important for ensuring . . . that Ireland can be a durable success story for the entire euro zone.”

Mr Kenny’s letter was sent to European Council president Herman Van Rompuy and was being circulated to leaders of the 27 other member states.