Kenny urges breaking of link between bank and sovereign debt

Taoiseach Enda Kenny has urged European leaders to deliver on their pledge to break the link between sovereign and banking debt, ahead of a key meeting of EU finance ministers tomorrow which will seek to secure agreement on banking union.

Speaking by video-link to the Brussels Economic Forum, an international conference on economics, Mr Kenny said that while Ireland had prioritised banking union during its presidency of the European council, Europe needed to deliver in "practical terms".

“Banking union is absolutely crucial. For leaders it’s a credibility test we cannot afford to fail. Following through on decisions is the very least citizens demand and expect from their leaders,” the Taoiseach told delegates.

Euro zone meeting
Minister for Finance Michael Noonan will chair tomorrow's meeting of 27 member states which takes place after today's euro zone finance ministers meeting, in a bid to reach agreement on banking union.

The issue is also likely to feature in next week's summit of European leaders. The idea of a pan-European banking union has emerged as a central plank of the EU's response to the financial crisis since last June's EU summit, but while the Single Supervisory Mechanism has been backed by member states, consensus on the other two pillars – bank resolution and recovery and deposit insurance scheme – is proving more elusive. France and Germany last month published a joint document which suggested significant differences on some of the key elements of the proposal.

Creditor preference
Tomorrow's meeting will be dominated by discussion on the banking resolution and recovery directive, amid differing views on creditor preference in the event of a bail-in, and the degree of flexibility that could be afforded to member states in implementing pan-European rules. Irish officials have been working with member states on the outstanding issue ahead of tomorrow's meeting. Yesterday, presidency sources conceded that reaching agreement would be difficult.

“We are really committed to try and get a result on Friday . . . It won’t be easy. [There is] still continuing strong disagreements between states on the level of flexibility.”

Speaking in Brussels yesterday, ECB governing council member and central bank governor of Finland Erkki Liikanen said banking union was "imperative" to break the vicious circle between banks and sovereigns.