EU LEADERS moved last night to step up the campaign to save the euro but deep divisions over their response to the debt crisis and doubt over the role of the European Central Bank cast a shadow over a crucial summit in Brussels.
With the authorities under mounting pressure to avert the threat of the single currency collapsing, Taoiseach Enda Kenny urged his counterparts to examine new measures to reduce the cost of Ireland’s €63 billion bank bailout.
Senior diplomatic sources said member states remain far apart over core elements of the new rescue plan, as cautious words from European Central Bank chief Mario Draghi raised serious questions over the bank’s willingness to escalate its interventions in sovereign bond markets.
The ECB cut interest rates yesterday for a second time in two months, but Mr Draghi spooked markets by downplaying expectation of a new ECB intervention to calm the debt crisis.
Mr Draghi insisted he found such speculation “puzzling” and said Europe’s bailout fund remained the prime instrument to tackle the crisis.
Arguing that new mechanisms were now available to make the bank debt more sustainable, Mr Kenny believes the maturity on loans to rescue the banks can be extended and that the European Financial Stability Facility can be used to provide direct capital injections to the banks.
As it stands, the interest rate on the loans used to rescue the former Anglo Irish Bank remains punitive.
Mr Kenny told reporters last night in Brussels that he hoped the summit would provide protection to the euro and stability to its members Earlier yesterday, he met centre-right EU leaders at a European People’s Party event in France.
“We have made the point that we want to pay our debt in full, but the cost of that, and the time in which to do it, is an issue that Europe can work with us on, and give us further cooperation,” he said in Marseilles.
However, Government sources said this was a medium-term endeavour which was not expected to yield a breakthrough at the Brussels meeting. They also insisted there was no suggestion that Mr Kenny’s request for better terms was a quid pro quo for his agreement to change the Lisbon treaty to strengthen the enforcement of EU budget rules.
Mr Kenny, like many other leaders, has been resisting the German-led clamour for treaty change.
However, a consensus is emerging that there will be no way of spurning chancellor Angela Merkel.
While the question is made more complex by Britain’s demand for an unspecified concession in return for its support, Dr Merkel said treaty change was essential to bolster the euro’s credibility.
“The euro can only regain its credibility by changing treaties to such an extent that we are moving towards a stability union,” she said.
Although core elements of the new rescue package are still subject to sharp dispute, EU leaders hope to achieve a definitive solution to the two-year crisis before they leave Brussels tonight.
In advance of last night’s talks, French president Nicolas Sarkozy warned that the viability of the EU itself was at risk.
“If we don’t have an agreement on Friday, there won’t be a second chance... Europe has never been closer to exploding,” he said.
EU leaders were poised to remove compulsory private creditor participation from bailouts in a permanent new rescue fund but Dr Merkel has blocked the simultaneous operation of the permanent fund and the EFSF temporary fund.
RATE CUT: BANKS HOLD TIGHT
THREE LEADING banks will not be passing on yesterday’s European Central Bank (ECB) rate reduction of 0.25 per cent to variable-rate customers while Bank of Ireland has only passed on 0.15 of the cut.
The second ECB rate cut in a month means holders of a tracker mortgage of €300,000 will be better off by over €500 a year. For every €100,000 owed, a quarter point reduction saves around €15 a month.
Banks must pass on cuts to tracker-mortgage holders but do not have to pass them to standard variable rate mortgage holders who comprise 30 per cent of the Irish market. AIB, Ulster Bank and National Irish Bank will not pass on the cut. Ulster Bank’s standard variable rate will stay at 5.1 per cent, nearly two points higher than some competitors.