EU ministers discuss debt crisis
Europe moved closer to a deal on tackling its debt crisis today, but time is tight to agree a comprehensive package before a summit at the end of March.
Draft conclusions from a meeting of European Union finance ministers in Brussels showed member states were willing to agree measures to keep their economies competitive, a core demand of Germany's.
That may in turn secure German backing for a strengthening of the European Financial Stability Facility, the temporary euro zone bailout mechanism set up in May, of which Ireland is a beneficiary.
But there remains concern in financial markets that failure to agree a stronger, more flexible EFSF as part of the package could reignite the sovereign debt pressures that forced Ireland and Greece into EU bailouts.
"There is work still to be done but we took good steps today in terms of clarifying the positions of member states and in terms of navigating the way forward for the adoption of the legislative package," European commissioner for economic and monetary affair Olli Rehn told reporters after the meeting.
While there were signs of progress - including a decision that the European Stability Mechanism, which will replace the EFSF from 2013, will have a lending capacity of €500 billion - time remains short to clinch a deal.
EU leaders are scheduled to sign off on the package at a summit in Brussels at the end of next month, but several meetings will have to be held between now and then to agree all the elements.
Minister for Finance Brian Lenihan said there was “significant disagreement” between member states on lowering the interest charge on bailout loans.
Last night, Mr Rehn warned that Ireland’s international sponsors expect “continuity” on the State’s rescue plan after the election as he backed eventual lower interest charges on bailout loans. Mr Rehn said flexibility was not in prospect immediately but he held out the prospect a review in future years.
Mr Lenihan said Germany wanted Ireland to quicken its austerity drive in return for a lower interest rate. He added, however, that the discussion was “very, very far” from Ireland being asked to accept a common corporate tax in return for a lower interest charge.
“The main focus of German concern has been the fiscal correction in Ireland. They want the fiscal correction expedited and this is the crucial issue in relation to the pricing policy, that if you want a better pricing policy you’d perform in terms of the EU-IMF agreement.”
Mr Lenihan said there was “considerable shock” in Europe at the debate on bond default in the election campaign. He said the debate was seen as something which was “deeply damaging” for the banking system.
Fine Gael's election manifesto, published today, said imposing losses on senior bondholders in Irish banks would only be extended as part of a European-wide framework and would focus on state-run lenders Anglo Irish Bank and Irish Nationwide, which are being wound down.
In its banking strategy published earlier this month, Fine Gael warned that if some of its proposals for dealing with the banking crisis were not implemented it could unilaterally impose losses on unguaranteed senior bonds, estimated at about €15 billion.
"I don't think there has been a particular softening of our position on banking and on burden-sharing," finance spokesman Michael Noonan said today. "It might be slightly more nuanced."
Mr Noonan reiterated that unless the average 5.8 percent interest rate on the EU's €40 billion plus worth of loans was reduced then the bailout could tip Ireland's banks over the edge. "Unless the bailout package is made more affordable there is a high risk that without anyone taking a policy decision that banks could run the risk of defaulting in Ireland."