An appreciable deal for Ireland on debt would seem to be still a distant prospect
SUMMIT INSIDERS described this gathering as a “shambles” and a “mess”. In the account of one European official, the leaders of Europe laboured for eight hours to do something that should have taken one hour.
As the dust settled in Brussels, the sense that Dublin’s campaign for debt relief had taken a small step forward was dimmed by strident words from the German chancellor on the vexed question of legacy bank losses.
Although Enda Kenny declared a good result for Ireland, simultaneous remarks from Angela Merkel injected a corrective note of caution. The net result is not quite the stuff of heady optimism, but that can hardly be a surprise at this point in the saga.
So what exactly happened on Thursday night? And where to do we go from here?
In essence, this boils down to a clutch of inter-related questions. These centre on the development of a euro zone bank supervisor within the European Central Bank, a move that is a precondition for the ESM bailout fund to directly rescue stricken banks.
This is one of Kenny’s core objectives: he wants the ESM to take direct stakes in AIB, Bank of Ireland and Permanent TSB. Crucially, he also wants the ESM to pay for some of the historic, or legacy, losses that led those institutions to lean on the State.
Each one of these questions is riddled with uncertainty over the scope and timing of what exactly might happen. What the leaders set out to do on Thursday evening was to eliminate some of that doubt by dealing sequentially with each of the big issues that arise.
They did manage to achieve clarity over some of these questions by the time they emerged bag-eyed from the summit chamber at 3am yesterday. Less than 12 hours later, Merkel’s remarks raised fresh doubt as to whether Kenny would ever achieve his aim.
This is a question of sequencing. In June, EU leaders agree to aim for a deal this year on the ECB powers. This was called into question by Germany at the end of summer and repeatedly since. What the leaders agreed at the summit was that they would redouble efforts to agree the legislative framework for the new scheme by year-end.
This would release the ECB to assume its new role some time in 2013, in the expectation that the ESM would be allowed recapitalise banks whenever the new supervisor was declared “effective” by the EU authorities.
The boon here for Kenny was that it fixed a real deadline to meet a key precondition for ESM banking aid.
Although he took care to say there would be no ESM rescues on January 2nd, the development appeared to restore some of the initiative lost when the German, Finnish and Dutch finance ministers declared in Helsinki that the ESM would have no truck with legacy debt.
Adding to the sense of progress was an instruction to all euro zone finance ministers to draw up exact criteria for direct ESM recapitalisations. The Taoiseach flipped away questions as to when the ministers would have to deliver, but the message to them is to deliver by the end of the year.
For good measure, the draft summit communique was amended in the dead of night to reiterate the need to break the link between sovereign and bank debt. This was reassuring from an Irish perspective; likewise the fact that the chancellor apparently made no effort at the summit to win others over to a ban on ESM deals involving legacy debt.
The sense early yesterday was that the summit had restored the status quo disrupted by the Helsinki declaration, with the additional rider of a deadline for a deal on new ECB powers.
Sources involved in the summit accepted there was “weakness” in the result, inasmuch as the leaders did not delve into the legacy debt question. The compensation for that, however, was the instruction to finance ministers to quickly pin down the parameters for ESM recapitalisations.
In doing so it was recognised that this process will soon run into the German election campaign.
This gives Merkel a clear incentive to slow down the whole game, an accusation levelled bluntly at the chancellor by French president François Hollande.
It follows that speed is of the essence for Kenny. He was in upbeat mode as he left Brussels yesterday, but Merkel soon cast a cloud over the proceedings.
In her press conference, she said the ESM would not be taking on responsibility for “retrospective” bank debts.
The implication was clear, although she was answering a question posed in respect of Spain’s addled banks.
Even if this is but an opening position for the negotiation to come, it shows that an appreciable deal for Ireland still remains a distant prospect.
The Taoiseach travels to Paris on Monday for talks with Hollande, who is emerging as a key ally. Now more than ever, he needs all the help he can get.
