It will just come with a price.
As the European debt crisis escalates, Ms Merkel will deliver a speech to parliament in Berlin today, previewing a meeting of European leaders due to consider changes to Europe’s governing treaty.
Energy Minister Pat Rabbitte said last month that the Irish Government would consider a referendum needed to pass any changes if the country is promised “significant alleviation” on borrowings.
At the heart of the Irish approach is reducing the €62 billion cost of bailing out the banks. While Irish debt is among the world’s best performing in the past six months, bonds pared gains over the past two weeks on concern the debt crisis will threaten economic recovery.
“If other eurozone countries are looking for treaty changes, this is a negotiating opportunity for Ireland to reduce its bank-related debt burden,” said Juliet Tennent, an economist at Goodbody Stockbrokers. “If Ireland didn’t have to deal with the cost of bailing out the banks, its overall debt ratio would be closer to the EU average.”
Ireland’s debt equates to 108% of gross domestic product, or 8% larger than the size of its economy, compared with an average ratio of 88% for the euro region and 163% in Greece, the European Commission said on November 10. The original requirement for euro membership was 60%.
Ms Merkel is defying investor calls to maximise financial firepower to calm markets, saying fast-track proposals for treaty change are key to solving the euro area debt crisis.
Her plans may flounder with Ireland, as significant constitutional change has to be approved by voters here. Irish voters rejected changes to the European treaty in 2001 and 2008, before reruns passed them,
“The crisis is now, and it has got to be dealt with with the facilities and tools that are now available,” Taoiseach Enda Kenny said in the Dáil on November 29. He also has said existing treaties should be used to the “hilt”.
In an initiative announced on November 24 at a meeting in Strasbourg, Ms Merkel said treaty changes were needed to bring the 17-country currency group toward greater fiscal union and to impose tighter rules on deficit spending.
Some in the Irish Government see an opportunity to gain sweeteners to persuade voters to back any treaty change.
“If there was significant alleviation in terms of the debt burden promised as a result of whatever treaty changes might be contemplated, then we would have to look at that situation very seriously,” Mr Rabbitte said on November 16. “There is no doubt that debt sustainability is still an issue.”
The Organisation for Economic Cooperation and Development estimates that Ireland’s Government debt will peak at 122.4% of GDP in 2013, equivalent to almost €200bn. That’s up from 25% of GDP in 2007.
“Treaty change would be a hard sell, but it could probably be sold if the terms are right,” said Gavin Blessing, a bond analyst at Collins Stewart in Dublin. “That could involve an incentive, effectively wiping away €15bn to €20bn of banking debt.”
Germany isn’t budging yet. German Finance Minister Wolfgang Schaeuble has indicated he opposed offering Ireland a break on its debt. “Like every country, Ireland has to manage its own tasks,” he told reporters in Berlin.
Mr Kenny said last month it would be “very challenging” to pass a vote on treaty changes.