BREAKING the link between banks and sovereigns. That is what we were promised, or thought we were promised, back in June. But which links, and which sovereigns?
My normal dislike of jargon mellows at the word "sovereign", although jargon it undoubtedly is. There is a certain ring to it, although one fears that many people, listening to pundits jabbering away about "the sovereign", are not clear what they are talking about.
It just means "governments" of course, and the jargon was to distinguish between their borrowings and that of ordinary institutions. But it has another, darker meaning for lenders to governments; that a sovereign country does not have to pay its debts and, unlike lesser entities, you cannot go in and seize its goods and chattels.
Well, that was the theory. Like so much else these days, this certainty is under threat. Argentina has been successfully sued in the US courts over its treatment of lenders and Argentinian goods and chattels abroad could well be seized.
We are being sued ourselves, you may have noticed. The High Court case taken by David Hall on the promissory notes was on an alleged breach of constitutional procedure, rather than the loans themselves; but Cayman Island hedge funds are suing the former Anglo, now IBRC, over how their junior bonds were defaulted upon.
The defence, intriguingly, is that IBRC is part of the Irish "sovereign", having been nationalised, and under US law, a foreign government cannot be sued over its actions in a US court. (Go ask a lawyer if you want to know the difference with the Argentinian case.)
Sometimes, it may suit to have a link between a bank and a sovereign. But not, it seems, when it comes to the promissory notes. Yet it is already clear that, even if there is a deal, it will not break the link; just make it less onerous.
The Irish case is not, strictly speaking, about breaking the link between banks and sovereigns, but between our particular banks and this particular sovereign. In the case of AIB and Bank of Ireland, what is being asked is that other sovereigns, across the euro area, take on the link.
The argument is not without merit. Quite apart from the unproven claim that the former government succumbed to intolerable pressure in deciding to prevent an Anglo collapse, if the euro is to be a common currency, rather than just a shared currency, there will need to be a common support for its institutions.
But if there is, then Ireland is no longer "sovereign". That is the inescapable logic of the creation of a real monetary union, never mind a real economic and monetary union.
If we do not wish to climb back beneath Mother England's skirts as she flounces, if not out of, then around the EU, we have to start figuring out what kind of entity we would like the new union to be, and the place of small states in it.
The place of small busted states is more problematic, and even more so if they carry a busted banking system as well. It is easy to see why other sovereigns do not want to take on this burden, but a more fundamental problem is that, if they did take it on, they may well ask why small states should have big banking systems in the first place.
It is no coincidence that creditor countries insisted that there must be a euro banking supervisor before they would share the losses of banks in other countries. Germany then jibbed at sharing past losses under any circumstances, but that does not change the principle.
Would a euro regulator close down chunks of the Dublin financial centre on the grounds of reducing overall risk? Would part of that risk reduction be that such large financial operations should take place only in large centres with more supervisory resources and the financial wherewithal to cover at least "normal" losses in such operations?
It seems more than possible. Europe has been so tardy in fixing its banks that it will be many years before it can genuinely start to break the link between banks and sovereigns.
The decision having been taken – perhaps rightly – to save the system, governments must stand behind it, but the position of individual governments differs enormously.
Ireland's position is that it cannot afford the bank rescue. That may be true, although it can afford the rescue of AIB and Bank of Ireland. Anglo is a different case.
The Government is desperate to claw back every euro it can, but it should consider the implications of accepting Eurozone capital for the operational banks. Even before one comes on to the IFSC, and things like financial transaction tax, Ireland can hardly argue that it is unable to cope with its banks and still hope to be a "sovereign" in the new eurozone banking architecture.