THE PROSPECT of an early debt relief deal is receding as German chancellor Angela Merkel resists pressure to escalate her response to the European banking crisis.
As EU leaders gather in Brussels this evening for their first summit since the summer, Dr Merkel insists that the development of a new euro zone banking supervisor within the European Central Bank must take priority.
The summit comes amid claims of German foot-dragging over new powers for the ECB to oversee banks. These are a precondition for the rescue of institutions such as AIB and Bank of Ireland by the European Stability Mechanism bailout fund.
A senior German official in Berlin said yesterday that the Irish banks’ problems occurred when they were supposed to be regulated by the Government. “It is simply not on that everyone tries to slip out of their responsibilities that they carried in the past.”
German officials said it was not their problem if Dublin had created expectations – “illusions” they termed them – around the speed at which the banking problem could be resolved and they noted that the June agreement contained no deadline.
Although the leaders will instruct finance ministers to settle criteria to guide any bank recapitalisations by the bailout fund, they will not set any deadline nor will they set parameters for any such deals. A summit communique is silent on whether the fund should take responsibility for historic banking debts. This issue is unlikely to be dealt with at the summit.
The communique says, however, that guidelines for bailout fund rescues should be drawn up “in full respect” of the leaders’ commitment in June to break the link between bank and sovereign debt.
The Government maintains this is sufficient confirmation of the June pledge, but Taoiseach Enda Kenny is likely to back demands by France, Italy and Spain for an explicit reiteration of the promise. He wants the bailout fund to bear “legacy” banking debts, but the finance ministers of Germany, Finland and the Netherlands say national bodies should be responsible.
