News Analysis

Monday 22 September 2014

Shane Coleman: A 'scoreless draw' for now but the tough games are fast approaching

Published 30/10/2012 | 17:00

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THE visit of German Finance Minister Wolfgang Schaeuble to Dublin yesterday ended up being the political equivalent of a solid nil-all draw for the Government.

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And, after the ups and downs it has endured over the past month in Europe, that is no bad thing.

There have been damaging 'defeats' such as when Mr Schaeuble and his Finnish and Dutch counterparts issued their Helsinki statement and then the real sickener when Chancellor Angela Merkel herself appeared to rule out any retrospective bank debt deal.

More recently, though, there was that surprise and hugely welcome 'victory' when Enda Kenny secured the joint statement with Ms Merkel that Ireland was indeed a 'special case'.

Yesterday's meeting in Farmleigh was about ensuring that none of the ground gained from that joint statement was lost. To continue the football analogy, both sides seemed happy to play it safe; not pick up any knocks or concede any soft goals.

This was most obvious when Mr Schaeuble politely declined to be drawn on the prospects of a renegotiation of the €30bn Anglo Irish promissory note, saying that was a matter for the European Central Bank. It brought to mind the old adage about the two most dangerous words in business or politics being 'No' and 'Yes', in that order.

Mr Schaeuble avoided saying either.

There were reasons though to be cheerful arising out of the meeting. Mr Schaeuble is renowned for being something of a hawk, so for him to so strongly endorse the Kenny/Merkel line that Ireland is a special case was very welcome.

He also spoke in very positive terms about how impressive Ireland's progress had been in restoring its public finances. His insight that Ireland was the talk of the G8 will be scoffed at by some who argue that being the best boy in the class is getting us nowhere.

But, given the negotiations that lie ahead, it's surely better there is a view out there that Ireland is trying to get its house in order.

Finally, Mr Schaeuble's answer that he was "100pc confident" that Ireland would return to the markets at the end of the bailout was also a strong endorsement.

But his most revealing answer came when he referred to the "short-term" and "medium-term" issues in relation to the bank debt -- the short-term issue being the promissory note and medium-term referring to the recapitalisation of the pillar banks.

Not that long ago, the Government was hoping to get a deal on both issues before the upcoming Budget, but it's clear that very different deadlines now apply.

The 'prom note', as Michael Noonan likes to call it, has to be addressed before 31 March next because that's when the next tranche of €3.1bn is due. The ever-wily Mr Noonan almost seemed to be appealing politician-to-politician to Mr Schaeuble when he spoke about the "difficult political decision" the Government would face in March if it had to pay out the full whack.

There does seem to be an understanding in the German government and the ECB that the optics for the Government of paying over €3.1bn a few short months after delivering budgetary cuts of €3.5bn would be disastrous -- even if the issue is far more complex than that.

A change in the terms of the prom note, perhaps spreading it out over 40 years, seems likely sooner rather than later.

But the issue of transferring legacy bank debt to the European Stability Mechanism bailout fund looks far trickier. All the signals suggest that nothing will happen on that until the second half of next year, at the earliest. It will take that long before the new EU banking regulatory regime is operational and then there is the not-so-small issue of the German elections next autumn.

But the real worry is less when the deal will happen (far better late, than never) and more 'if' and how much it would be worth. Taken at face value, the declarations about breaking the link between the banks and the sovereign and Ireland being a special case can only mean that we will get some kind of deal.

However, it seems unlikely to prove so straightforward -- yesterday's no-score draw may have been a case of 'job done for now' for the Government, but some big wins will be required in the months ahead.

Shane Coleman is the Political Editor of Newstalk 106-108fm

Irish Independent

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