One for the team
Taoiseach Enda Kenny’s letter to EU leaders serves as a necessary reminder to them to keep their word and to honour a commitment they made over a year ago. His intervention comes at an opportune time, against the background of an EU summit in Brussels, and weeks before Ireland, in mid-December, plans to exit the bailout programme. In June 2012, the EU leaders then agreed to break the link between sovereign and bank debt, and to allow for the recapitalisation of banks through a new euro zone bailout fund, the European Stability Mechanism (ESM).
Ever since, Germany and others – including the Netherlands and Finland – have sought to reinterpret and to qualify that commitment, insisting the ESM would cater for future and not past events. Accordingly, legacy assets – in Ireland’s case the huge bank debt that became onerous and unsustainable sovereign debt – would remain the responsibility of national governments. The ESM would not be used to recapitalise Irish banks, and to judge by the latest position adopted by Germany, the bailout fund would only be used as a backstop of last resort.
Willem Buiter, a greatly respected economist – and former member of the Bank of England’s monetary policy committee – noted in Dublin this week that Ireland has a compelling case for ESM funds. He pointed out that in 2010, when a Fianna Fáil-led government, sought to “bail -in” senior bondholders in Anglo Irish Bank – by making them share the bank’s huge losses – strong pressure from Germany, the US and ECB president, Jean-Claude Trichet, blocked that move. They all feared a likely contagion effect should that happen, given the fragile state of global financial markets. As Mr Buiter said, Ireland, by avoiding a bank collapse at great cost to taxpayers, took one for the team – Europe.
And as Finance Minister Michael Noonan and the Taoiseach have now clearly put it: it is now time for the team to keep its word, and to take one for Ireland.