HAVE IRISH hopes of an EU deal to lighten the State’s massive debt load been dashed, or simply delayed? The answer provided on Tuesday in a joint statement by the finance ministers of Germany, the Netherlands and Finland is hardly encouraging. Their statement, coming as it does from Europe’s new paymasters, offers little grounds for great optimism that a deal will either be achieved soon, or match the high expectations set last June.
Then, euro zone leaders agreed to break the link between sovereign and bank debt, and to allow for the recapitalisation of banks through a new bailout fund, the European Stability Mechanism (ESM). Those plans are now cast in some doubt. The three influential finance ministers in interpreting the June 29th decision have sought to make a clear distinction between future and past national financial liabilities. How much has really changed?
From a position last June, where Germany, the Netherlands and Finland seemed ready to share some of the banking risks of weak euro zone partners such as Ireland and Spain, they are now actively seeking to minimise their risk exposure. The ESM, they suggest, would cater for future rather than past events. And legacy assets – bank debt that has become crippling sovereign debt – would remain the responsibility of national governments. All this runs counter to what EU leaders decided in June. Let us not forget that governments – as in Ireland’s case – that rescued banks in difficulty, and later found it harder to borrow as interest rates soared, were forced to accept an EU-led bailout.
Taoiseach Enda Kenny, addressing the issue yesterday in the Dáil, was adamant that the agreement of June 29th still stood, and will be implemented. He repeated the clear commitment made by EU leaders, which included an undertaking to help improve the sustainability of Ireland’s adjustment programme. His confidence was shared by the Department of Finance, which rather remarkably welcomed the proposals of the three finance ministers as contributions to further discussions in the months ahead. Against the background of what is a clear attempt to reinterpret – if not renegotiate – an agreement made, the Taoiseach and the department have displayed stoic equanimity. What three finance ministers among many say may matter less than what their leaders finally do. Nevertheless, this is a deeply worrying development, notwithstanding the soothing, morning after noises emanating yesterday from Germany, Finland and the Netherlands, reported in today’s edition.
But once again an unexpected political initiative has created renewed financial uncertainty in the euro zone at an inopportune time. Spain is facing a constitutional crisis, as Catalonia is set to hold a snap election that could lead the region to declare independence from Madrid. Greece, yesterday, was paralysed by a general strike held in protest against the latest round of austerity measures. The euro has weakened. And the remarkable gains made by Ireland in the bond market since the June agreement may well be reversed in the weeks ahead. Let us hope that what Finance Minister Michael Noonan last June hailed as a “seismic shift” in EU policy does not turn to have been a mere tremor.