Merkel and Hollande in bank union clash

France and Germany clashed yesterday over the details of a banking union, with final agreement threatening to drag on until December, risking a return to volatility for the eurozone.

Ireland’s main issue — the recapitalisation by the EU’s rescue fund, the ESM, of the old bank debt — is still an open question.

However, the leaders were pushed to reaffirm their June statement that they want to break the vicious link between banking and sovereign debt, on the understanding that this would mean they will cover legacy assets, such as the €32bn Ireland put into its banks. The provisional conclusions do not mention the issue of legacy debt, and this was being seen by the Irish as at least a step in the right direction by not ruling it out at this stage.