THE GOVERNMENT is engaged in talks with EU institutions and the International Monetary Fund to try to find a way of reducing the debt burden on the country for the bank bailout, Minister for Finance Michael Noonan has confirmed.
Mr Noonan told The Irish Timesyesterday that the best approach to the problem was to negotiate with the relevant international institutions before looking for a political solution to the problem.
The Minister added that the isolation of Britain after David Cameron vetoed an EU treaty on fiscal disciplines for the euro zone showed the importance of choosing an opportune time to pursue national interests.
On the question of whether a referendum on the treaty would represent an opportunity to press for a deal on the debt, Mr Noonan said it was far too early to say if a referendum would be required.
Meanwhile, the new head of the European Central Bank, Mario Draghi, has warned of the high costs of a euro zone break-up, breaching a taboo for a president of the ECB, even as he sought to play down market expectations about its role in combating the sovereign debt crisis.
In his first interview since becoming ECB president on November 1st, Mr Draghi told the Financial Timesthat struggling euro zone countries that quit the currency bloc would face still greater economic pain. For remaining members, European Union law would have been broken, and "you never know how it ends", he said.
Mr Draghi stressed the importance of measures taken by the ECB to shore- up euro-zone banks, which include its first-ever offer of unlimited three-year loans this week. But he emphasised that the region’s politicians had to take the lead in rebuilding investor confidence in euro zone public finances.
Mr Draghi also appeared to rule out US or UK-style “quantitative easing” – embarking on large-scale government bond purchases to boost economic growth.
At home, Minister of State at the Department of Finance Brian Hayes said yesterday that if a referendum was needed in Ireland to approve the EU treaty it might strengthen the country’s hands in negotiations on the debt.
“It is difficult to see a referendum being successful unless we can strike a deal on the debt,” said Mr Hayes.
He added, however, that it was not clear if a referendum would be needed and the cabinet would await the advice of the Attorney General.
“It would be crazy to have a referendum unless we need to have one. A referendum would be about whether we want to stay in the euro and the consequences of the instability that could be created during the campaign could have devastating consequences for the economy and prompt a flight of capital from the country,” said Mr Hayes.
Mr Hayes said that Ireland had already won major concessions from the EU. One was the reduction in the interest rate on the overall debt and the other was the terms of the liquidity being provided to the Irish banks by the ECB. The final element that needed to be put in place was a mechanism to stretch out the repayments on bank debt over a longer period of time.
According to Government sources the key negotiations on the bank debt involve the EU Commission and the ECB.
The sources added that linking further concessions on the debt to a referendum campaign could be very dangerous, given that there was nothing to prevent the rest of the euro zone from moving on without Ireland.
A leading German member of the European Parliament, Elmar Broc, also dismissed the possibility of linking a restructuring of the Irish debt to a referendum on a treaty designed to strengthen the euro.
Speaking on RTÉ Radio's This Weekprogramme he said that the two issues should be kept separate.
Mr Broc said that if everyone put forward conditions for approving the treaty then nothing would happen. He added that everyone had to give something to arrive at a point of common interest. – (additional reporting: Copyright The Financial Times Limited 2011)