EU warned of debt deal risk to Coalition

Senior Government figures have put the viability of the Coalition on the line, as well as key strands of its economic policy, in talks on the debts of Anglo Irish Bank.

Such concerns are being taken seriously in Brussels, where officials acknowledge warnings from Dublin about a potential threat to the Government.

Expanding the argument to ease the burden of Anglo’s debt, Government figures have let it be known in talks that failure to reach a deal could put the Coalition at risk.

Government figures are also making the case that it would be very difficult to agree more cuts in the next budget if no deal is struck.

Separately, Minister of State for Health Alex White said it would be a lot more difficult to achieve a new “Croke Park” deal on public service pay without a promissory note deal.

Escalating pressure

Escalating pressure for an agreement follows the ECB’s refusal to back an Irish proposal to replace the Anglo promissory note IOUs with a long-term bond.

This would cut the €3.1 billion annual payment, but the ECB fears it would violate the legal ban on printing money to finance member states.

Efforts are under way to rework the proposal, the aim being to settle on a scheme capable of withstanding any legal challenge in Germany. The ECB governing council meets again in Frankfurt on Thursday, but it is not yet clear whether it will discuss Anglo.

European leaders meet that day in Brussels for a summit but the debate centres on the EU budget. While Taoiseach Enda Kenny and Tánaiste Eamon Gilmore are in Brussels today for pre-summit talks, the Irish case is not on the formal agenda.

Mr Gilmore’s spokeswoman would not deny or confirm a Sunday newspaper report which said he had told several European figures in Chile last week that the Coalition could fall if there is no deal, saying the discussions were private.

However, a ranking official in Brussels acknowledged high-level signals from Dublin that any failure to reach agreement with the ECB could jeopardise the continuation of the Coalition. “I am aware that this issue has been raised by the Irish because there is such a strongly held view that something must be done,” the official said.