Some kind of deal on bank debt still in play
THE FOCUS of Dublin’s campaign for debt relief now returns to finance ministers after a weekend of fevered diplomacy in which Angela Merkel appeared to accept that Ireland’s banking crisis demands a “special” solution.
The German leader’s defiant rejection on Friday of backdated bank rescues by the ESM can only amplify concern about the viability of the Government’s main demand.
However, Taoiseach Enda Kenny may well have retrieved the situation when he spoke by phone for 30 minutes on Sunday afternoon with Merkel.
Officials of all hues say some kind of a deal remains in play, yet we still don’t know what might be done or when.
The two leaders reaffirmed a commitment in June to examine how the sustainability of the bailout plan might be improved, and said finance ministers would take into account the “unique circumstances” of the Irish case.
There was no direct reference to debt sustainability per se but the Taoiseach himself said on Friday that the Government was working to improve the understanding of the Irish situation in this respect.
As Europe’s prospects for economic growth dim, such remarks come amid anxiety in Government circles that the debt may become unsustainable without a relief deal.
Although Merkel’s scepticism over the most radical notions is now out in the open fully, intensive activity in Berlin this weekend suggests all was not lost after she said the ESM would not repay retrospective bank debts.
This led to a political storm in Dublin, prompting German officials to insist it was never the chancellor’s intention on Friday to trample over Irish hopes.
Yet her remarks about the ESM were unambiguous and they gave fresh force to the infamous Helsinki statement last month in which the German, Finnish and Dutch finance ministers said national bodies must remain liable for most banking debts.
Still, the instant response of a high-level European source to the chancellor’s intervention was to say that the history of the debt crisis is littered with examples of big policy reversals by Germany.
“Do I have to give you the list of all the U-turns of the last 2½ years?” replied one senior
figure when asked about the chancellor’s remarks.
A core objective of last week’s summit was to corral EU leaders behind a phased plan to deal with Europe’s bedraggled banks and, in so doing to negate the impact of the Helsinki statement.
The first summit resolution was to settle legislation by the end of the year for the ECB to supervise banks, a precondition for direct ESM bank recapitalisations.
Second was an instruction to finance ministers to develop concrete plans for the ESM to intervene in this way.
The net impact was to win back some of the ground lost since June when EU leaders declared they would break the connection between bank and sovereign debt and examine the Irish programme.
Irish hopes for a swift breakthrough foundered, however, and the Helsinki statement suggested Germany and its main allies would have no truck with any mutualisation of banking debt.
The response all along from Dublin was that Helsinki had no bearing on the leaders’ pledge in June to tackle the loop between bank and sovereign debt. This was an argument the Government could no longer sustain after Merkel’s intervention on Friday.
As the political system in Dublin went into overdrive, moves were quickly set in train for the Taoiseach to speak with the chancellor.
However, she was unavailable on Friday night as she was in Munich at the congress of the Christian Social Union party, her Bavarian coalition partner.