German finance minister upbeat about Ireland's recovery prospects

GERMAN FINANCE minister Wolfgang Schäuble has said that he is optimistic that Ireland will be able to pull out of its economic crisis.

But he insisted that future EU bailouts would come with tough conditions, including a clause specifying the precise losses that bondholders would be expected to shoulder.

"The EU was not founded to enrich financial investors," he told this morning's Der Spiegelmagazine.

Mr Schäuble rejected suggestions that Ireland’s difficulties were likely to unsettle the financial markets, saying investors would be far more worried if G20 nations failed to cut their deficits in half by 2013 as promised.

Asked about the growing premiums on Irish and Greek sovereign bonds, he said: “I’m not so pessimistic. The Irish have piled up huge debts because of the rescue efforts for the banks, but are coming along well with the reform of their economy.”

The German finance minister also had words of praise for Athens. “A few months ago no one would have believed that the Greeks could have implemented such a drastic austerity programme,” he said. “Now they are on a good path.”

Mr Schäuble played down the failure of Berlin to push through automatic sanctions for future breaches of the euro-zone stability pact as “the way it is in Europe”.

“The vast majority of EU members made clear they wouldn’t accept automatic sanctions,” he said.

Berlin was satisfied that EU members had agreed to the “important principle” that new rules would see private creditors included when a country cannot repay its debts, he added.

Officials in Berlin are working furiously to put legislative flesh on the political bones agreed at the Brussels summit. Details will emerge during the month.

“The new mechanism will not involve old debts but new credit,” Mr Schäuble said. “I envisage that all future loans from euro states should contain clauses which lay down specifically what would happen with creditor claims in the case of a crisis.”

Private investors in sovereign bonds could not expect a full repayment of their loans in a new two-stage process Berlin is anxious to implement for distressed eurozone members.

Stage one would see the EU imposing a Greek-style austerity programme, which could see the extension of loan repayment periods.

“If this doesn’t help then, in a second stage, private creditors would have to accept a write-down,” Mr Schäuble said. “For that, they would be given a guarantee on the rest.”

The IMF will be part of any future EU rescue plans, Mr Schäuble insisted.

Mr Schäuble’s conciliatory words towards Ireland and Greece are in contrast to a verbal outburst against his press secretary that has gone viral on the internet.

At a press conference to announce tax income, Mr Schäuble lost his temper when it emerged that a press release had not been distributed to journalists.

“I said 20 minutes ago that it would be nice if you distributed the figures,” said Mr Schäuble to his press officer Michael Offer.

“Don’t talk, Mr Offer, make sure the figures are distributed and I’m leaving the press conference. Tell me when you’ve distributed the figures.”

Over 100,000 people have watched the video online. Mr Schäuble has admitted he “might have overreacted”.