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We're on the brink of €64bn debt deal after key EU talks

TAXPAYERS have been given fresh hope that our €64bn bank debt burden could be eased.

EU leaders have agreed the legal framework for a new eurozone banking supervision system, a move the Government is confident will lead to a debt deal for Ireland.

The 27 leaders agreed to adopt the framework by the end of this year, giving the European Central Bank new powers to oversee national lenders.

It also opens the way for the EU's rescue fund to inject capital directly into ailing institutions in the eurozone.

And Taoiseach Enda Kenny is hopeful it will lead to the resolution of the thorny issue of legacy debt -- that is the tens of billions of euro Irish taxpayers have already pumped into the banking system.

Tanaiste Eamon Gilmore today hailed the development as a "big step forward".

He said the agreement will lead to the direct recapitalisation of banks, a prospect which was not on the table only a few months ago.

"The EU is proceeding with banking union. That will enable the ESM (European Stability Mechanism) to directly recapitalise banks," Mr Gilmore said.

Meanwhile, credit rating company Fitch become the second ratings agency within a week to signal an improved outlook for Ireland's credit rating.

However, it said any improvement in the BBB+ rating is dependent on the Government securing a banking debt deal.

In a separate development, Lucinda Creighton stunned her EU colleagues by beating three commissioners in the race for a top job. The junior minister is now a vice-president of the European People's Party after the vote in the Romanian capital Bucharest.

She takes over from the Taoiseach, who previously held the job but has now decided he is too busy dealing with issues in Dublin.

The EPP, which counts German chancellor Angela Merkel among its members, is the largest grouping of centre-right parties in the EU and the largest group in the European Parliament.

"It's great recognition for the work we're doing," Ms Creighton told the Herald.

After 10 hours of difficult negotiations in Brussels, European Council president Herman Van Rompuy said the single supervisory mechanism "could probably be effectively operational in the course of 2013". It is envisaged that all 6,000 banks in the eurozone will come under ECB supervision by 2014.

European leaders held the final day of their two-day summit this morning.

It is unclear from the communique issued after the late-night talks what grounds will be used to allow banks to be recapitalised through the ESM.

It is also not certain if legacy bank debt will be included in any programme but the Government believes this is the case.