'Spain has learned from Ireland'

Thu, Jun 7, 2012, 01:00

Minister for Communications Pat Rabbitte said Spain has learned from Ireland’s experience of a sovereign taking on the burden of bank debt, and that Madrid was right to adopt an “open negotiating strategy” in relation to problems in the country’s banking sector.

“In the Irish case, the previous Irish government allowed themselves to be strong-armed into a situation where the private bank debt was piled on top of the sovereign debt, leaving us with this huge burden of debt that we are now seeking to restructure and renegotiate,” he told RTÉ’s Morning Ireland programme.

“The Spanish government is well aware of that, they understand what the significance would be for the Spanish sovereign if a similar situation obtained in Spain,” he said.

According to the Süddeutsche Zeitung daily, European officials are examining the possibility of paying bailout funds directly to the Spanish banking rescue fund rather than to the Spanish government.

The Spanish government has admitted it is effectively shut out of funding markets but is anxious to avoid a bailout. A full audit of the country’s financial sector has been requested, with results expected in two weeks. External estimates of capital requirements have ranged from €30 billion to €100 billion.

Mr Rabbitte said Spain was similar to Ireland in that they both “went on a large property splurge fuelled by cheap money and reckless lending by the banks.

“If they have a huge-scale need for recapitalisation, that could prove too much for the sovereign and would probably have knock-on consequences for Portugal and for Italy, at a minimum,” he said.

Defending accusations made by opposition leaders in the Dáil yesterday that the Taoiseach Enda Kenny was not revealing what assurances, if any, he had received from German chancellor Angela Merkel about Irish bank debt after the referendum, Mr Rabbitte said the Taoiseach should not have to disclose the content of exchanges with key personnel in Europe.

“Our objective is to get alleviation of the debt, to get recognition that we were first in the firing line, that in order to protect the European banking system we took a huge hit in this country, and we want some recognition of that,” he said. “We are engaged in discussions that will hopefully see that recognised.”