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Kenny to capitulate to Merkel on budget rules


Taoiseach, Enda Kenny and German Chancellor Angela Merkel

Taoiseach, Enda Kenny and German Chancellor Angela Merkel


The Taoiseach, Enda Kenny, is expected to concede this week to a demand by Germany for legally binding economic governance throughout Europe and especially the eurozone.

In return, Mr Kenny anticipates that the European Central Bank (ECB) will act immediately to create a "firewall" of cash to give eurozone governments time to repair their finances.

The Taoiseach is also holding out "other possibilities", including, eventually, that a form of eurobonds be issued which would effectively collectivise the debts of member states.

Mr Kenny has said that he expects Europe's leaders will this week also agree to fast-track a range of measures intended to "boost sustainable growth and job creation".

But the Fianna Fail leader, Micheal Martin, remains concerned that Ireland will emerge from a crucial EU summit meeting on Thursday and Friday committed to the demands of Germany but with little or nothing in return.

Mr Martin, a former foreign minister, has said that Germany now stands as the "greatest threat" to Europe. The decision to bend to the demands of Germany will give rise to another treaty change referendum here -- pitched to "save the euro" -- which will most likely be held in 2013 with no guarantee that it will be passed.

A disorderly collapse of the euro currency union could lead to a global financial crash; there are also warnings of other, related catastrophic events. A Swiss bank recently said that a fragmentation of the common currency could provoke civil strife: "No modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war," UBS AG has said.

Mr Kenny has publicly opposed the need for treaty changes and that is said to still be his official position. But behind the scenes, amid a welter of "buzzing telephones" and a conclave of "energetic and urgent" talks, he is preparing a U-turn.

The Taoiseach's new position comes as he prepares to address the nation tonight at a time when the country faces into a critical period during which the most far-reaching decisions will be taken.

The outcome of the summit, and the result of a subsequent referendum, is expected to ultimately define the leadership of Mr Kenny and inform the success or failure of his Government.

German Chancellor Angela Merkel is insisting that the eurozone member states accept a partial loss of sovereignty and deeper fiscal integration and that they be legally bound to do so.

Ms Merkel remains sceptical about massive bond buying with ECB printed money; she fears that it could undermine the bank's credibility as an inflation fighter, which Germany views to be the ECB's most important mission. She is also opposed to the idea of eurobonds.

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As the Taoiseach prepares for what will be a 15th meeting of European leaders intended to end the eurozone crisis, it has emerged, however, that Ireland has not formally tabled any measures for inclusion on the agenda.

Even more remarkably, Finance Minister Michael Noonan, on his way to a meeting of Europe's finance ministers in Brussels last week, declared that he had no idea what would be proposed at the crucial summit meeting this Thursday and Friday.

Ms Merkel will first have to overcome her differences on the way forward with French President Nicolas Sarkozy at a meeting in Paris tomorrow.

The chancellor is, so far, resisting pressure from France and other powers in Europe, to stop capital flight from eurozone government bond markets by allowing the ECB to forcibly intervene.

ECB President Mario Draghi indicated last week that the bank was willing to do more to help fight the crisis, provided governments make the first move. But the ECB remains wary of taking an initiative that could spark a political firestorm in Germany.

The former European Commission president, Jacques Delors, who is one of the chief architects of the euro, yesterday accused current European leaders of amplifying the crisis by doing "too little, too late".

He has also blamed the crisis on "a fault in execution" by politicians during the early days of the currency, particularly their refusal to acknowledge the threat caused by imbalances in the economies of member states.

Ms Merkel is determined to focus on what she sees as the root causes of the crisis and create a long-term regime of fiscal discipline, which will involve treaty change to give European authorities new powers of enforcement.

While the Taoiseach is anxious to avoid direct criticism of the German approach, Mr Martin has become increasingly strident.

Last week he said: "I have no doubt the motives of Germany's leaders are sincere. . . no matter how sincere they are, they are wrong. The country which has done more than any to build up Europe. . . now stands as its greatest threat."

Herman Van Rompuy, President of the European Council, is preparing an interim report to present to the Council meeting. Senior Irish officials are said to be "actively participating" in this process.

Government sources say the report will "identify possible steps" to "strengthen economic union", and will focus on "further strengthening economic convergence" within the eurozone and "improve fiscal discipline" and "deepening economic union", including limited treaty changes.

The Taoiseach has also said that the meeting will "consider the broader question of the growth-enhancing measures". He intends to stress that Ireland remains "fragile".

Mr Martin, however, has said the use of such "rhetoric and language" which he said was "so beloved of mandarins throughout Europe", reveals nothing. He believes the fiscal union agenda is another example of a "flawed proposal" which will not deliver what it promises. He has said: "A genuine fiscal union would involve a dramatic increase in the central budget and transfers from wealthy countries to poorer ones."

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