EU leaders bicker but debt deal moves closer

Ireland’s bid to offload billions of euro of debt was slowly making headway last night despite EU leaders bickering over the details of a banking union.

The latest developments to the plan to make the country’s massive debt manageable came as the ratings agency Fitch signalled it may soon remove Ireland’s negative outlook, helping the country secure cheaper funding from the markets.

However, upgrading the credit rating from its current standing of two notches above junk would depend on the country getting a credible deal to cut a sizeable slice of the massive €63bn banking debt, Fitch said. Getting a deal depends on the first step in a banking union being agreed — a single European bank supervisor — and then agreement that the EU’s rescue fund can fund current banking debt.

Taoiseach Enda Kenny urged quick action on this before the two-day summit began.

“We have the opportunity to do this, there is no time to waste and everything to gain in what is Europe’s most critical hour in the last half-century,” he said.

This contrasted with the message from Germany’s chancellor Angela Merkel, who said on her way into the summit: “We will stress once again that we need to work very swiftly but also very thoroughly.”

Germany was last night said to be leading up to eight EU states that want to delay the ECB from becoming the banking supervisor. In the summer they agreed the legislation should be in place by January and become operational over the following six to 12 months.

Even Spain, which was very forcibly pushing for direct recapitalisation of its banks, was briefing yesterday that it was no longer an urgent matter, especially as the embattled country had raised more than was needed on the markets yesterday at a cheaper rate than previously estimated.

Ireland was very much depending on Spain blazing the trail and had been promised equal treatment with it by the last summit.

However, the leaders did agree to have the legislation for the single bank supervisor in place by the end of this year.

However, for Ireland there are still several issues to be resolved including whether the rescue fund, the European Stability Mechanism, can fund legacy debt. Sources said this would depend on agreeing just how far back the debt went.

In the meantime, Germany was putting forward several demands for full economic union, including a super European commissioner who would be able to veto national budgets while France was pushing eurobonds.