Taoiseach Enda Kenny and the German Chancellor Angela Merkel reaffirmed tonight the commitment made by European leaders on June 29th to deal with the bank debt issue.
Mr Kenny and Dr Merkel spoke by telephone this afternoon.
In a joint communique this evening they said they had discussed the unique circumstances behind Ireland’s banking and sovereign debt crisis, and Ireland’s plans for a full return to the markets.
"In this regard they reaffirmed the commitment from June 29th to task the Eurogroup to examine the situation of the Irish financial sector with a view to further improving the sustainability of the well performing adjustment programme," it said.
"They recognise in this context, that Ireland is a special case, and that the Eurogroup will take that into account.”
The statement comes after an apparent rebuff on Friday by Dr Merkel to claims of solid progress. She upended a carefully crafted plan to resolve Europe’s banking crisis, delivering a sharp setback to Mr Kenny as he battles for a debt relief deal.
Moments after Mr Kenny declared in Brussels that he had achieved solid progress overnight at a tense EU summit, Dr Merkel moved abruptly to curtail the scope of the effort to break the link between bank and sovereign debt.
The chancellor’s intervention, which took high-level EU figures by surprise, has cast a new cloud of uncertainty over the feasibility of Mr Kenny’s demands.
For the first time in public, she backed her finance minister Wolfgang Schäuble in his assertion that national bodies must remain responsible for most banking debts.
This is markedly at odds with the push from Mr Kenny and the leaders of France, Italy and Spain for the European Stability Mechanism bailout fund to pay for historic banking losses.
Minister for Jobs Richard Bruton said yesterday the June agreement “absolutely still stands”.
Questioned on Dr Merkel’s contention that an agreement would not operate retrospectively, Mr Bruton said: “The truth is that what the council decided is that the EU finance ministers must now go and design what the European Stability Mechanism will do. That’s what they have to do - decide its mandate. And it will become effective once the bank supervision is in place.”
A deadline of January 1st had been put in place for the legislation on the banking supervision.
“Of course we’ve seen throughout this whole process for the last number of years countries expressing very trenchant views as to what’s the best way forward. But the truth is that we have evolved dramatically and many countries that initially took positions that ‘we won’t do this’have recognised that in the context of a number of things being done together they shift their position."
Mr Bruton said Ireland would work on the negotiations being undertaken by Minister for Finance Michael Noonan on both the two pillar banks and on the legacy of the Anglo Irish promissory note.
"So that continues to be entirely in place. The council has moved forward some of the deadlines so that continues. We are used to seeing expressions of disbelief in one route or another. But that’s in the course of negotiation and we also have many allies. On the very same day, others said directly the opposite. So I think there is a lot of work to be done here.”
Earlier today, Minister for Communications Pat Rabbitte criticised the "orgy of negativity" and the "glee" with which the German Chancellor Angela Merkel's comments on efforts to break the link between bank and sovereign debt had been greeted.
Speaking on RTÉ radio, Mr Rabbitte said there was no change to the agreement made on June 29th in which the 27 heads of state agreed to separate bank and sovereign debt.
"Yes the Chancellor did give a press conference....but the formal legal position of the council stands until it’s changed. And it stands with the agreement of 26 other heads of state including the German Chancellor."
"I have some difficulty in understanding the almost glee in some parts of this country. To hear the leader of Fianna Fáil wishing to do down the country because he thinks he might score a point on the Taoiseach was a position more fitting to the leader of Sinn Féin. That’s the kind of thing one expects from Sinn Féin but one doesn’t expect it from a man who was around the table who got us into this mess in the first place."
Tánaiste Eamon Gilmore said he was concerned by Ms Merkel's comments but said a distinction needed to be made between what one leader said at a press conference and what 27 had agreed to do at the formal European council meeting which included Ms Merkel.
The question of who takes responsibility for “legacy” banking debts has emerged as one the most sensitive issues to be settled in complex talks on the recapitalisation of stricken banks by the ESM.
Although EU leaders decided at the summit to farm out this discussion to euro zone finance ministers, Dr Merkel pre-empted these talks even though the EU leaders did not address this question at the summit.
Their focus had been on fixing a January 1st deadline for a legal agreement on new powers for the European Central Bank to supervise commercial banks, a precondition for direct ESM aid to banks.
This was a “very progressive” step forward, Mr Kenny told reporters. “So that’s good news from that point of view for Ireland and for Europe.”
It was only shortly afterwards, in a briefing room down the corridor from where Mr Kenny held his own press conference, that Dr Merkel spoke.
Answering a reporter’s question about the possibility that any ESM rescue of Spain’s banks would damage her re-election campaign next year, she ruled out the fund taking on retrospective liabilities.
“I hadn’t even thought of the elections before hearing such ideas here. The capital needs of Spanish banks have just been evaluated and a programme for their recapitalisation has been agreed,” she said.
“Spain only needs to ask for the tranches of funds. There will be no retroactive direct recapitalisation, either.” These remarks were immediately seen as an implicit rebuff to the demands of Mr Kenny and his supporters for a mutualisation of banking debt.
A German government spokesman in Berlin later said her remarks were simply a reiteration of the current legal position and that there was nothing new in them; they were not about Ireland.