Business Irish

Tuesday 23 January 2018

Where Europe stands on Ireland tapping the EU for a banking bailout

Sarah Collins in Brussels

If Ireland does decide to tap an EU loan for the banking sector, it will have to get the approval of a substantial majority of EU member states and the unanimous support of the soon-to-be 17 members of the single currency.

This is because there are three sources of aid on offer: a €60bn fund backed by the EU budget, leaving all 27 member states on the hook if Ireland fails to pay the money back; a €440bn pot guaranteed by the 16 eurozone countries; and €250bn from the IMF.

Most EU countries have thrown their backing behind a putative request, which the Irish government continues to deny is forthcoming.

However, Finland's finance minister has made noises about refusing an aid request, demanding "guarantees" from Ireland that it can pay the money back. As one of the smallest eurozone states it's difficult to believe he could stand firm on the pledge for very long, but he is making a bid for the premiership ahead of general elections next spring, and may be pandering to taxpayer fears.

Germany supports an Irish request for aid, despite being on the hook for the majority share of the €440bn (up €120bn).

German finance minister Wolfgang Schauble insists it's a matter for Ireland to decide, and is more concerned with making bondholders share the burden of future bailouts in talks on a new post-2013 loan facility.

Germany is also keenly awaiting a constitutional court ruling on the legality of the eurozone fund, due by the middle of next year.

France's finance minister Christine Lagarde has thrown her backing behind Ireland and said intensive talks in Dublin could wind up "in a matter of days". At a lunch meeting of EU finance ministers on Tuesday, she raised the spectre of a possible corporate tax hike as a condition of any aid, sources revealed.

Belgium, which holds the bloc's six-monthly rotating presidency, is in favour of Ireland tapping the fund. Belgian finance minister Didier Reynders told the Irish Independent that he was "waiting for the question".

Luxembourg's premier Jean-Claude Juncker, who heads up 16-member group of eurozone countries, said it is "the responsibility of the Irish government to make up its mind and ask for European support". He stressed the Dublin talks should be "short and focused".

The Netherlands, one of the EU's main paymasters after Germany, France, Spain and Italy, won't withhold permission for aid if it's requested, but finance minister Jan Kees de Jager insists on "strict conditionality": Eurospeak for swingeing budget cuts and tax rises.

Portugal, the next weakest link in the eurozone chain, fears a "contagion" effect from Ireland's banking crisis, and finance minister Fernando Teixera Dos Santos has urged Ireland to take "the right decision".

The European Commission, in the person of economics chief Olli Rehn, supports an aid request and will be scrutinising the four-year fiscal plan and December budget to make sure they are stringent enough to quell fears of hazard. He is also pushing for "quite some reorganisation and restructuring" of the banking sector.

The European Central Bank is not in favour of remaining on standby for Irish banks, EU policymakers have acknowledged, and would support Ireland going elsewhere to fix any potential problems in the financial sector.

Irish Independent

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