TAOISEACH ENDA Kenny has called on EU leaders to examine radical new steps to “better manage” the increase in the borrowing costs of Spain and Italy to contain the escalating debt crisis.
Addressing the Dáil last night on the EU summit in Brussels tomorrow and Friday, Mr Kenny said a new report on a long-term future vision of the single currency by four European “wise men” would do little to contain immediate turmoil in debt markets.
The report was a welcome contribution but it was worth noting it does not address the immediate crisis, he said. “It should not distract us from the urgent steps that also need to be taken to stabilise the markets.”
Mr Kenny reiterated his demand for the planned new permanent rescue fund, the European Stability Mechanism, to be given the power to rescue banks directly without the money going on to the national debt of the country concerned. The Government believed any such step in Europe’s bailout of Spain’s banks would create a precedent for Ireland, but Germany ruled that out.
Last night, Reuters reported that Germany may be willing to relent. The news agency said the parties in the German coalition proposed allowing the ESM to funnel aid directly to national bank rescue funds. But this was dismissed last night by a senior Berlin source.
Separately yesterday, German chancellor Angela Merkel was reported as seeking to bury the idea of common euro zone bonds. “I don’t see total debt liability as long as I live,” she was quoted as saying, a day after branding eurobonds “economically wrong and counterproductive”.
Euro zone governments have agreed in principle to provide up to €100 billion for Spanish banks but markets are sceptical as Madrid will be on the hook for the money. Doubt over the plan has pushed Spanish borrowing costs to new records, raising questions over the viability of an initiative which assumes Madrid will retain access to debt markets for day-to-day borrowings. This, in turn, has led to pressure on Italian borrowing costs. Europe’s rescue firewall is not big enough for a full-blown bailout of either or both countries, leading officials to examine alternative methods. These include the suggestion that the European Financial Stability Facility or ESM funds intervene directly in debt markets to buy up Spanish or Italian bonds, an idea rejected by Germany only last week. This notion, promoted heavily by Italy, comes amid opposition from the European Central Bank to any renewal of its bond-buying campaign, a programme which led to a the defection of the two highest-ranking German bankers in the ECB.
Germany and European officials have been playing down expectations for any breakthrough at the summit, not least because Dr Merkel faces parliamentary votes on Friday night to ratify the fiscal treaty and the treaty establishing the ESM.
Mr Kenny indicated, however, that the situation is serious enough to merit new emergency measures. “In a context in which market pressure has continued to mount on a number of member states – especially on Spain and Italy – I expect that we will need to discuss whether there are steps to be taken to better manage bond spreads,” he told the Dáil. “A number of proposals involving the EFSF, the ESM and the ECB have been floated in this regard. I do not believe that this will be an easy discussion, but it is an essential one and it cannot be shirked.”
The Taoiseach’s remarks to the Dáil came at the end of a day in which four EU leaders submitted a new masterplan for the single currency.
The report was written by Herman van Rompuy, José Manuel Barroso, Mario Draghi and Jean-Claude Juncker, respectively the leaders of the European Council, the European Commission, the ECB and the euro zone ministers. They called for a deepening of fiscal, banking and economic integration in Europe.
