Berlin says bank deal for Ireland would send wrong signal


GERMANY HAS cast doubt on any deal on bank debt following the fiscal treaty referendum outcome, saying it would be a “negative signal” to reopen Ireland’s bank rescue arrangements.

Taoiseach Enda Kenny raised the bank debt issue with German chancellor Angela Merkel last Friday, but senior German officials dispute Mr Kenny’s interpretation of Ireland’s fiscal treaty vote as a “message to European Union leaders” for a “just” debt deal.

“We see no need for movement at the moment,” said Martin Kotthaus, spokesman for finance minister Wolfgang Schäuble.

The Government wants to ease the burden of the €60 billion-plus bank bailout and the EU-IMF-ECB troika is studying a technical proposal to reduce the €47 billion Anglo Irish Bank promissory note scheme.

A final, unanimous decision to reshape the programme must come from EU leaders. A negative response from Berlin, the largest donor to EU bailout funds, would scupper any deal.

“Ireland is considered a model bailout student so you have to think of the consequences of such a renegotiation which would, in effect, double Ireland’s bailout programme,” said a senior German official.

Irish officials conceded yesterday that, technically, the referendum changed nothing on Irish banking debt. However, after keeping the issue out of the campaign, the Taoiseach is anxious to remind European leaders of what, in Ireland’s view, is the unresolved bank debt issue.

“It is not about having a bargaining chip with the Germans,” said a Government spokesman, “but it is Europe that has to negotiate any changes . . . there are many perspectives.”

The German response came as the European Commission warned against linking Ireland’s endorsement of the treaty with the clamour for a concession to ease the burden of the banking rescue.

“It’s a further commitment but it has nothing to do with the work that Ireland is doing with the help of the troika,” said a commission spokesman. “I’m not sure we can mix all the different processes that work in parallel.”

The Government sees a chance to move forward its bank debt concerns as anxiety intensifies over Spain’s banking sector. “As the situation in Europe changes, so does the context,” an Irish official noted.

Spain denies it needs any external aid but official observers in Brussels and elsewhere believe the country is in danger of being quickly shut out from private debt markets if investor sentiment does change radically.

Direct ESM aid for Spanish banks might avert the need for a full-blown EU-IMF bailout, but the ESM is not allowed do that at present and Germany does not want to change the fund’s mandate.

The commission has suggested changing the rules to allow such intervention to create a euro zone “banking union” to avert bank runs.

French finance minister Pierre Moscivici backed such an idea, calling it a “fundamental issue for which proposals are on the table”.

Dr Merkel supported the idea of a banking union but not ESM direct lending or mutualised debt. She met European Commission chief José Manuel Barroso in Berlin last night.

Finance ministers from the G-20 and G-7 groups will hold emergency talks today on the situation in the euro zone, said Canadian minister Jim Flaherty.