Steinbrück opposes using ESM for legacy bank debt

Sat, Oct 27, 2012, 01:00

GERMAN OPPOSITION politician Peer Steinbrück hopes to oust German chancellor Angela Merkel next year, but on one point they agree: their opposition to using European bailout funds to reduce Ireland’s legacy bank debt.

Alongside Tánaiste Eamon Gilmore in Berlin yesterday, the Social Democratic (SPD) politician drew a line through Ireland’s hopes of securing bank debt relief and went one step further by criticising Ireland’s corporate tax rate.

“I’m in favour that we reach a tax harmonisation, which doesn’t mean we have to have the same corporate rates but that we have a corridor,” said Mr Steinbrück, a line he took as federal finance minister until 2009. “It cannot be the case that the gap is as wide as it is. If Germany is making available its creditworthiness to others, we expect others to improve their own revenue base.”

On European Stability Mechanism (ESM) bank recapitalisations, Mr Steinbrück said the Merkel administration was “avoiding the issue like the devil avoids holy water” because it was unpopular with German voters.

This position “had a certain logic”, he said, given that the ESM was supported by taxpayers. Mr Steinbrück gave his backing for the official Berlin line that the ESM bailout fund could only consider recapitalising banks once a Europe-wide banking regulator was in place – and then only for new problems arising on its watch.

“The ESM is not responsible for legacy assets,” he said.

Germany’s ruling Christian Democratic Union (CDU) dampened speculation yesterday that it has shifted its line on this issue.

Norbert Barthle, head of the CDU Bundestag budgetary committee, told RTÉ yesterday that a recapitalisation of banks could be possible, but would require a new programme with new conditions.

Contacted yesterday, Mr Barthle said ESM assistance would not apply for Irish legacy assets but for new cases in “a new programme with a perspective for the future”.

Mr Gilmore told a Berlin audience at the SPD-supported Friedrich Ebert Foundation that Ireland’s recovery “has been and is a hard slog where our people have taken great pain” and that his party was committed to controlling public finances.

“If you don’t control public finances you don’t control your destiny,” he said. “If you want good public services we need fiscal stability or else we hand control of our destiny to financial markets.”

He defended Ireland’s economic model, based on attracting foreign direct investment, as “not a threat to Germany or our other partners in Europe as we are competing with mobile investment in other parts of the world”.

Mr Gilmore rebuffed the Berlin-backed call for a new European treaty as an “inward debate about institutions and constitutions”, saying Ireland would use its EU presidency of 2013 to drive growth and tackle youth unemployment.

“We must make the most of what we have and use the treaties and tools we have to the maximum,” he said. “Without doubt this is the quickest way to make progress to recovery.”

Ireland’s loss of economic sovereignty had, he said, been a “humiliating and disturbing” experience for Irish people and had dampened public appetite for a Berlin proposal: an EU finance commissioner with powers to veto national budgets.

Earlier, after a meeting with German foreign minister Guido Westerwelle, Mr Gilmore had said he was confident of securing a “timely” deal on Ireland’s bank debt. He said Berlin understood that Irish success with its EU-IMF programme and the bank debt issue were interlinked. “The troika is clearly focused on how Ireland gets out of the programme; to do that we have to resolve the issue of the bank debt.”