ANALYSIS:Delays in EU negotiation with Spain fuel concerns over how to ensure we get equally good terms, writes HARRY McGEE
WITH STRONG indications there will be no early relief on the tens of billions of euro it has pumped into Irish banks, a number of alternative solutions have been considered in senior Government circles.
One suggestion that has been floated in senior Government circles is for the deal to ease the €63 billion bank recapitalisation burden to be delivered in two stages: with the first instalment towards the end of the year; and the second at a later stage after the Spanish government has concluded its negotiations with the EU over bank recapitalisation there.
Minister for Finance Michael Noonan said this week he would be reluctant to proceed to a final deal with the EU on this issue without first seeing the details of the Spanish deal when it is concluded.
The political difficulty for the Government has been that negotiations between the EU and Spain on the matter have been much slower than anticipated. There is concern in Government circles that an inordinate delay in settling this matter could impact on economic recovery and dampen growth expectations.
Two separate ministerial sources, both speaking on the basis of anonymity, told The Irish Times that such a two-stage approach has been considered and has been “in the mix”. Such an approach would allow Ireland secure a deal in principle at an earlier stage and then be in a position to claim the same terms as Spain, once it has concluded a deal. However, the sources said no final strategy has been decided.
“It could well be possible that we could have a deal in principle and not in practice until the Spanish deal is worked out,” said one ministerial source.
“We need to get the debt to GDP ratio down to allow growth and investment. We are not hung up on a date. But politically, it would be a bad situation if we signed off and found out that the terms and conditions offered to Spain at a later date were better.”
Noonan dropped heavy hints this week that the end of October deadline would not be met for reaching a deal with the EU on recovering some of the €63 billion pumped into bank recapitalisation since 2008.
The Government won a significant concession at the EU summit on June 29th when leaders agreed that bank debt could be separated from the sovereign. However, progress with Spain has been slow. More details will emerge when it gives a status update at the Eurogroup meeting of finance ministers later this week.
Noonan and his officials have played down the significance of the target date. At the same time, there is concern about undue delay and its possible dampening effect on growth and recovery.
Privately, Government sources acknowledge that the markets have lowered the spread between Irish government bonds and German bunds partly in anticipation of it happening.
“There was always going to be a tail or a work-out. Once we are in a position to figure out how it happens, it will also be contingent on what happens in Spain and also on the launch of the banking supervisory union,” said an official.
While Noonan has argued he is not overly concerned about the deadline, reaching a deal by October would have given certainty by that date about the funding situation for 2013, one of the requirements laid down by the International Monetary Fund for programme countries.
But, said a source: “It’s very slow. It’s like getting a mouse to push an elephant around. It will take some time.”