Subtle shift may help demand for Irish debt
Possible moves by Germany to indicate support for an Irish debt deal come as Dublin pushes to execute a smooth exit from the bailout next autumn.
Any direct bank rescues by the European Stability Mechanism (ESM) would not come until 2014 at the earliest, too late for Ireland’s deadline to leave the EU-International Monetary Fund programme in late 2013.
Therefore, consideration is being given to an explicit show of support next year for Dublin’s debt relief campaign in an attempt to shore up demand for Irish debt when the Government must rely again on private investors. The idea is that such a move would help Ireland break free of the bailout, thereby easing tension in the euro zone generally.
However, this remains a tentative process and there is no certainty of a breakthrough. But a subtle shift by Berlin might prove significant even if there is no absolute commitment to ease the debt load.
While German chancellor Angela Merkel has acknowledged that Ireland is a “special” case, she has never provided clarity in public as to what exactly that meant. Although Berlin is adamant that direct bank rescues by the ESM fund will not go ahead until 2014 at the an earliest, the notion of an agreement next year to proceed down this path for Ireland is slowly gaining ground.
These developments follow a deal in which finance ministers settled new powers for the European Central Bank to supervise banks from March 2014.
In public, however, Dr Merkel is maintaining her habitual caution. “We have a lot of work to do to get the banking regulator set up by 2014 so that it can get to work,” Dr Merkel as she arrived in Brussels last evening.
“It is a good signal that the finance ministers reached an agreement on banking supervision. That is a big step towards more trust and confidence in the euro zone.” The evolving German stance in relation to Ireland comes as EU leaders discuss a demand from European Council president Herman Van Rompuy for a clear deadline by which EU leaders would settle terms for any ESM bank rescues.
In spite of earlier indications that Germany and close allies such as Finland and the Netherlands might seek to block any such move, Mr Van Rompuy’s request appeared to be gaining support last night.
German sources indicated that Berlin could be won over to this idea but stressed that definitive support could not be assured at this point.
Senior diplomatic sources said it appeared that the leaders would pledge to finalise such measures in the first half of next year, if not by the March deadline mooted by Mr Van Rompuy.
However, EU leaders were set last night to shelve moves to examine changes to the EU treaties as part of a new drive to toughen their budget rules after 2014.
Mr Van Rompuy’s draft conclusions for the summit suggested he would call on leaders to commit to a sweeping long-term plan to reinforce the euro’s foundations, which ran into strong resistance from Germany and Sweden.
He had proposed a progressive pooling of economic sovereignty at European level as well as a reinforced solidarity between member states, leading to increased common decision-making on national budgets.
While his proposal also included deepening tax co-ordination and a further round of treaty change, the indication last night was that such references would be eliminated from the final summit conclusions.
Mr Van Rompuy also wanted governments to make contractually-binding commitments to stick to any budget directions from the EU authorities.
Instead, the leaders were set to call for a more thorough ongoing examination of this proposal next year.