Merkel and Kenny agree that Ireland needs special approach

 

TAOISEACH ENDA KENNY travels to Paris this morning after agreeing with German chancellor Angela Merkel yesterday that the “unique circumstances” of Ireland’s economic crisis require a special approach.

Mr Kenny and Dr Merkel spoke by phone for almost 30 minutes yesterday afternoon to clear up the fall-out of the German leader’s Friday remarks in Brussels, ruling out relief for “legacy” bank debt.

Asked who initiated the call, which took place at 5pm, a Government source said there had been contacts between officials from the two governments last Friday and there had been a mutual wish to arrange last night’s conversation.

“They discussed the unique circumstances behind Ireland’s banking and sovereign debt crisis, and Ireland’s plans for a full return to the markets,” a communique issued after the call said.

It reiterated a June euro zone commitment to look again at the situation of the Irish financial sector “with a view to further improving the sustainability of the well-performing adjustment programme”.

“They recognise in this context that Ireland is a special case and that the euro group will take that into account,” said the statement.

The statement gives Mr Kenny a welcome boost ahead of his first official visit as Taoiseach to the French capital. Yesterday French sources said Paris backed Dublin’s stance that some old, so-called “legacy”, debt would have to be borne by the European Stability Mechanism (ESM) to make good on a pledge by European leaders in June to break the link between sovereign and bank debt.

“The statement of June opened the door to this – and it hasn’t been closed,” said a senior Élysée official. A second French source said it was “very clear” that including old debt was in the spirit of the June deal.

On Friday in Brussels, Angela Merkel dismissed “retrospective recapitalisation” of banks, saying such a move would only be possible only for future debts, under an EU banking regulatory regime.

German officials, surprised by the heated reaction in Ireland to Dr Merkel’s remarks, agreed to an Irish request on Saturday and issued a statement confirming talks on recapitalising European banks are ongoing.

“The later process of recapitalisation of the banks will be a complex one with negotiations at each stage to address important issues,” the statement read.

“Ireland and Germany will continue to co-operate closely in order to improve the sustainability of the Irish programme and ensure its successful outcome.”

With tough talks in the weeks ahead, it remains to be seen whether this promise of a differentiated approach to Ireland has changed the scope for agreement on substantive issues.

Berlin officials insisted at the weekend that Dr Merkel’s Brussels remarks, though referring to Spain, “naturally apply for Ireland too”.

“We cannot present our position differently to how it is,” said a Berlin government source. “Nothing in our position has changed since June.”

German and Irish sources said yesterday that June’s EU summit conclusions were left ambiguous on purpose to allow maximum political and financial leeway for all sides in the coming months. But growing expectations about just how much debt the ESM could absorb, particularly in Spain, prompted Germany to go public with its refusal to touch “legacy” debt.

German officials insist the June declaration, while vowing to look at improving Ireland’s EU-ECB-IMF programme sustainability, carries no obligation or deadline for action, and no link to an EU banking regulator or bank recapitalisations.