Merkel: Ireland will get a deal but no recapitalising banks

Ireland will get some kind of special deal to help ease the debt burden, German Chancellor Angela Merkel has told the Taoiseach — but she will not change her mind on recapitalising the banks.

The country was “a shining example” of how Europe will emerge stronger from the financial crisis than when it went in, but it must make market and social reforms that return it to competitiveness, the chancellor said.

Ms Merkel tried to dampen expectations of the country getting up to €32bn for the banks and cutting up to 18% of the debt, as sources indicated we can expect a series of small concessions over a period of time.

Ms Merkel said, “Our finance ministers [Michael Noonan and Wolfgang Schäuble] are working very hard on the specific Irish issue and we have full confidence (in them). You will have to wait and see the outcome of their work.”

Enda Kenny reiterated that Ireland was a special case and should be treated as such, and said the more clarity that could be provided on how the country’s debt will be made more manageable, the greater the likelihood Ireland can successfully return to the markets.

“We discussed the Irish situation in depth, the reforms, the ongoing efforts of dealing with our bank debt, and I stressed our determination to exit the programme... We have a shared interest in an Irish success,” he said after the two leaders met in Berlin. Mr Kenny said he looked forward to building on the strong Irish-German co-operation to date, especially during the six months of Ireland’s EU presidency.

Asked about the success of a policy of austerity, Ms Merkel said it would not be doing matters justice to label the policy being followed in the eurozone as only austerity. The necessary fiscal, budgetary, and structural reforms would ensure a better opportunity for people to get jobs.

“We will only be successful in the end if we are competitive enough to sell on world markets.”

German sources said that using the EU’s bailout fund, the ESM, to recapitalise legacy bank debts was not going to happen. Technical experts in the troika and the Government were investigating a series of small changes that would help ease the debt, but there would be no one, big, single solution.