Kenny faces big challenges on bank debt deal

TAOISEACH ENDA Kenny faces a host of challenges this morning in Berlin.

At a joint press conference after talks with Chancellor Angela Merkel, the Taoiseach will be anxious to move beyond recent tensions over Ireland’s bank debt.

His first challenge will be to show that Dublin remains a constructive EU player but still has unfinished business with its partners.

Mr Kenny will lay out Ireland’s priorities for its upcoming EU presidency, particularly initiatives for jobs and economic growth. With an eye on domestic expectations, however, Mr Kenny needs to keep the heat under Ireland’s outstanding bank debt issue without overheating it.

After Monday’s Dublin visit of German finance minister Wolfgang Schäuble, the priority is to find a one-off technical bank deal bringing credible relief to Ireland ahead of its return to financial markets that is narrow enough to avoid setting a me-too precedent in other programme countries.

To attract political backing here, it may also need to be obscure enough not to upset the established German narrative that Ireland is an exemplary reform candidate. It will be a slippery challenge for Mr Kenny to instil enough concern in Germany about Ireland’s recovery prospects to allow further assistance without shattering public illusions about Ireland and, with it, political leeway for assistance.

“Many here have given themselves over to the illusion that Ireland’s problems are solved, which of course is not the case, but even those who understand the reality don’t know what can be done to help,” said Dr Heribert Dieter of Berlin’s Institute for International Affairs (SWP). “Whoever moves first in this debt stand-off has lost, so the German government is trying to avoid moving.”

The unappealing fact Mr Kenny faces is that even informed German observers of Ireland’s situation, aware of the potential risk the debt burden poses next year, are not jumping for joy at the idea of a retrospective refund for Irish taxpayers for nationalised debt clocked up by Irish banks on the watch of the Irish banking regulator.

And they are a minority among the vast majority of political players in Germany, where the euro zone crisis channel is permanently tuned not to Ireland but Greece, Spain and Italy. For them, there is even less appetite for bank recapitalisations.

Despite the challenges to a bank debt deal, Eamon Ryan, leader of the Green Party and a regular visitor to Germany, says Berlin’s reticence should not be seen as a slight against Ireland. “The issue of debt relief is problematic politically in general in Germany because of the jingoistic way it could be handled in the media,” he said.

“But if the Government cannot pay the next bond in March there is a certain timeline for agreement on addressing at least the promissory note issue sooner rather than later.” As technical talks continue on bank debt issues, Mr Kenny will use today’s Berlin talks to set out his stall for Ireland’s European Council presidency next year.

In particular he needs to sound out the German leader on her mood to compromise on the 2014-2020 budget, also known as the multi-annual financial framework (MFF).

Even if a special summit this month, under the Cypriot presidency, agrees on whether the EU will get more or less money, the devil could be in the budgetary detail, to be agreed on the Irish watch.

“Ireland has the chance with its presidency to show its traditional strengths again, produce solutions on difficult issues like the MFF and generate goodwill,” said a senior German official. This is the hope Irish officials have in the challenge ahead: that securing sensible compromises during its presidency will aid movement on Ireland’s own issues of concern.

“Without overstating it, I think it’s true to say that the better the reputation the better the sense of goodwill, which translates into a favourable view to getting things done,” said Lucinda Creighton, Minister of State for European Affairs.

Today’s Berlin visit is an important stepping stone to Ireland’s six-month presidency challenge: to keep the EU wheels moving while pushing the bank debt issue – in parallel and in the background.

“What’s crucial is to find something that will eventually trigger timely action,” said one senior Irish source yesterday. “Because the closer we get to Ireland’s exit from the programme, the more urgent it becomes.”