TAOISEACH Enda Kenny and Spanish Prime Minister Mariano Rajoy have both said the European Union faces a "test of credibility" in ensuring it follows through on its promise to break the link between sovereign and bank debt.
Both leaders said agreement on banking union – a key step in using European funds to directly capitalise banks – is crucial, and it is due to be discussed at an EU summit in June.
It would be the first step towards taking a stake in Irish banks, if the Government manages to secure such a deal. And using the European Stability Mechanism (ESM) for capitalising banks may also be required if Spain needs to further stabilise its beleaguered financial sector.
Mr Kenny and Mr Rajoy met at the Alhambra Palace complex in Granada, Spain, yesterday as part of Ireland's EU presidency.
The Taoiseach said he was also there to "show solidarity" with Mr Rajoy and the Spanish people as they face their own economic difficulties. Mr Kenny will also meet Portuguese leader Pedro Passos Coelho today.
Mr Kenny said the decision of EU leaders at the European Council last June to break the link between sovereign and bank debt still stands.
Tanaiste Eamon Gilmore described it as a "game changer" at the time, but some leaders, such as German Chancellor Angela Merkel, have since poured cold water on the idea of refunding Irish taxpayers for money they have already poured into the banks.
Mr Kenny said that banking union is of "immense importance to the future of the union itself".
Mr Rajoy added that getting agreement on banking union is a "test of credibility for the EU".