Germany revives possibility of Irish deal on bank debt
THE prospect of a rift between the Irish and German governments over efforts to cut a deal on Ireland's €64bn bank bailout appeared to recede today after both moved to clarify their positions.
Dublin's bid to ease the burden of its outstanding debt were thrown into uncertainty last night after German Chancellor Angela Merkel indicated that debts racked up in the past would not be covered by a new emergency fund to recapitalise banks.
Her claim that the envisaged European Stability Mechanism (ESM) would be limited to future debts and would not be used for “backdated recapitalisation of Eurozone banks” seemed to cast doubt on an agreement struck by European leaders in June that potentially would have seen Ireland's repayment terms on its own bailout improved.
Mrs Merkel's comments at a European financial summit in Brussels yesterday appeared to have set her on a collision course with Taoiseach Enda Kenny, who had earlier insisted that his European counterparts had reaffirmed the June position.
Amid fears of a stand-off, the German government today issued a statement stressing it would work closely with Ireland to “improve the sustainability of the Irish programme”.
In response, a spokesman for the Irish Government said the German statement represented a “clear affirmation of support for Ireland's position”.
Mrs Merkel's remarks at a news conference yesterday came in response to a question related to indebted Spanish banks.
It is understood the Irish authorities have since received assurances the Chancellor's comments were specifically about Spain and did not relate to the Irish bailout programme.
Today's German statement did not take a definitive position on the ESM and legacy debt.
However, the Irish Government spokesman insisted the Dublin administration had never been prescriptive on the timetable for a deal or on the specifics of how legacy debt should be dealt with.
Speaking on RTE radio today, jobs minsiter Richard Bruton acknowledged it would be a “difficult negotiation” but he said an agreement made in June “absolutely still stands”.
This meant there would be a separation of banking and government debt and there would be direct action on the sustainability of the Irish debt position.
Questioned on Dr Merkel’s contention that an agreement would not operate retrospectively, Mr Bruton said: “The truth is that what the council decided is that the EU finance ministers must now go and design what the European Stability Mechanism will do. That’s what they have to do - decide its mandate. And it will become effective once the bank supervision is in place.”
A deadline of January 1st had been put in place for the legislation on the banking supervision.
Fianna Fail interpreted the latest German statement in a less positive light.
The party's spokesman on finance Michael McGrath TD said it had done nothing to clarify Chancellor Merkel's remarks.
“The comments we heard this morning from the German spokesperson do not address the key issue of whether legacy bank debt will be dealt with through the ESM,” he said.
Mr McGrath said Ireland's hope of achieving a deal on backdated recapitalisation of banks had suffered a setback.
“The Irish Government seems to be in denial about the significance of Chancellor Merkel's comments,” he added.
“I am again calling on the Taoiseach to have a direct bilateral meeting with the German Chancellor to get a definitive answer as to what the position is regarding a deal on legacy bank debt for Ireland.
“Since the summit statement at the end of last June, the Government seemed to take it for granted that a deal on bank debt would follow. The Government now needs to quickly realise the writing has been on the wall for some time that a deal on bank debt, while still possible, is by no means inevitable.”
Sinn Fein leader Gerry Adams said Mr Kenny needed to change tactics if the Government was to secure an agreement to deal with Ireland's “unsustainable” debt.
“The history of this Government's approach to Ireland's crippling bank debt burden is a catalogue of failure and incompetence,” he claimed.