Monday 23 October 2017

High praise but Merkel makes us wait on debt deal

Fionnan Sheahan Political Editor

THE Government accepts it won't get a legacy bank debt deal until at least next year but German Chancellor Angela Merkel's ringing endorsement of the country's economic recovery has brought fresh hope.

Coalition figures believe Ms Merkel's praise for "what Ireland has achieved" following her historic re-election says a lot about her positive views on the country.

However, the German leader also said there would be no shift in her policy on Europe, the eurozone and Ireland as she looks to form a new government.

After a stunning election victory, Ms Merkel is now aiming to form a "grand coalition" between her centre-right Christian Democratic Union (CDU) and her centre-left rivals in the Social Democrat Party (SPD).

Germany has also been driving Europe-wide austerity policies for countries such as Ireland that have experienced severe economic crises.

But analysts say this will be Mrs Merkel's final term in office and she is going to focus on repairing Europe as a legacy of her tenure.

There is a widespread belief in Germany that she will let up on the austerity policies and provide greater support for peripheral countries like Ireland.

The stability from Ms Merkel's re-election is expected to provide added impetus to moves to set up a new bailout fund.

The Government is now hoping for a renewed focus on the setting up of the European Stability Mechanism, which brings the possibility of getting a refund on up to €30bn put into the banking sector.

German taxpayers will effectively be funding a large chunk of the ESM, meaning the chancellor will have a key say in how it is established and subsequently used.

Following her historic re-election, Ms Merkel said Ireland has made good progress so far in its economic recovery.

"I'm grateful to my colleague Enda Kenny for implementing the reforms so passionately. Ireland is one of those examples where it can be shown things are improving.

"Ireland has remarkably lower yields on its bonds. I want to express my sincere respect for what Ireland has achieved over the past couple of years. These developments are good and important for Ireland," she said.

The Government has been chasing a legacy debt deal since June 2012, when Taoiseach Enda Kenny got acceptance at an EU summit of Ireland's unique circumstances.


Ms Merkel reiterated this stance three months later, describing Ireland as a special case.

But senior government figures believed there would be little progress on setting up the bailout fund before the German elections, thereby delaying the prospect of any retrospective recapitalisation of the banking sector.

Tanaiste Eamon Gilmore said the legacy bank debt question would be addressed next year.

"We have never taken the view that it was dependent on an election in any individual country. Resolving that issue is dependent on the establishment of the Single Supervisory Mechanism and the architecture for banking union.

"As it happens we had a leadership role to play in that, indeed, during our Presidency of the European Union, where we advanced proposals for the establishment for the Single Supervisory Mechanism and the architecture around banking union," he said.

"The expectation is that that will come into effect in 2014 and that it is at that point that the issue of legacy bank debt will be dealt with.

"But I think it's also fair to say that, as a Government, we have made our views on this issue known. We have made other governments aware of our views on that and we have made the European institutions of that and we will continue to work on that issue until we get a satisfactory resolution to it.

Securing a deal on recapitalising the banks was previously viewed as a component in ensuring a permanent exit from the bailout, albeit not a prerequisite. But there is now an acceptance within Government that it won't happen within that timeframe.

Finance Minister Michael Noonan has been showing increasing anxiety about exiting the bailout.

He has been linking the established targets of a €3.1bn package of taxes and cuts in Budget 2014 to a permanent exit from the bailout.

Last week, he told Fine Gael TDs the bailout was "not Lanigan's Ball", where the country could "step in and step out" of a programme of emergency funding.

The Government secured a deal earlier this year to stretch out the repayment of the €25bn bill for bailing out Anglo Irish Bank for up to 40 years. But it has been pushing Europe to get a refund on the remaining €32bn of taxpayers' money that went into AIB, Bank of Ireland and Permanent TSB.

Junior Finance Minister Brian Hayes said there was a broad consensus the possibility of retrospective recapitalisation of banks can still be considered on a case-by-case basis.

Irish Independent

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