Germany's Social Democrat leader Sigmar Gabriel has insisted that only countries that sign up to a European financial transaction tax should be entitled to tap the ESM bailout fund.
At coalition talks yesterday in Berlin, Chancellor Angela Merkel and her Christian Democratic Union (CDU) agreed to redouble efforts to push for a financial transaction tax (FTT) at European level. The SPD has made this a precondition of joining a second grand coalition with the CDU.
Though Ireland was not mentioned by name at yesterday's talks, two SPD sources confirmed that Mr Gabriel demanded a "linkage" between the FTT and access to ESM funding. One SPD official said Mr Gabriel was referring both to full ESM programmes as well as the limited, precautionary ESM funding Ireland may seek as it exits its EU/IMF programme.
Five weeks after the German federal election, grand coalition talks have yet to get into detail on finance policy.
Officials from Dr Merkel’s CDU insisted that talks had “not gone into detail yet” and that it was too early to say whether SPD demands would become government policy.
But SPD politicians have vowed to make an energetic case. “Everything is interlinked: you cannot have ESM financing for countries that aren’t ready to adopt measures to help themselves,” said Axel Schäfer, SPD Europe expert and a participant in coalition talks.
He said his party was aware of the potential for "rabble-rousing" in Ireland when German politicians touched on Irish tax affairs but insisted the SPD was pushing for the FTT to ensure that banks, and not taxpayers, shouldered the cost of future financial crises.
“This debate isn’t directed against the Irish,” said Mr Schäfer. “But it is an issue that has to be addressed together and we want everyone on board.”
Dr Merkel's Bavarian allies, meanwhile, warned yesterday against allowing the ESM fund to recapitalise struggling EU banks. "We have to be careful that, in the end, the German taxpayer and Germany won't, in the end, have to finance the banking debts of others," said Markus Söder, the Bavarian finance minister.
Officials promised yesterday to finalise agreement on outstanding issues relating to the European banking union ahead of a meeting of EU finance ministers in mid-November.
SPD politician Martin Schulz, president of the European Parliament, described yesterday's talks in Berlin as "consensus-oriented".
Scratch the surface, however, and cracks soon appear between the two parties on key EU issues. The SPD is once again calling for so-called eurobonds, jointly issued EU debt certificate, while the CDU and its CSU Bavarian allies are opposed.
The CDU and CSU have dismissed SPD ambitions for a so-called “debt redemption fund”, offering states cheaper financing from a common EU pot in exchange for binding debt repayments.
Even yesterday's agreement to push for an FTT is old wine in new bottles. The Merkel government agreed to push the proposal at European level last year to secure SPD backing in the Bundestag on the EU fiscal treaty. After SPD complaints of a CDU go-slow, Merkel officials insisted the tax was a priority for Berlin.
Some 10 euro zone states besides Germany back the move, including France, Spain and Italy.
Britain is opposed, prompting the Government to follow suit out of fear the levy would put Ireland’s financial sector at a competitive disadvantage to the City of London.