Kenny bids to defuse Commission row

Taoiseach Enda Kenny moved to mend bridges with the European Commission as work is due to begin in the next few weeks on details of how the EU can directly recapitalise banks.

Ireland hopes to get back some of the €28bn it put into the country’s three main banks when new structures are in place next autumn, but senior EU sources continue to pour cold water over such plans.

The Taoiseach would not confirm that the Government had asked Economics Commissioner Olli Rehn to stay away during last week’s bailout but EU sources said the Commission was upset that the Government had claimed all the credit for the successful exit without reference to the help they had received from Brussels.

The Government does not want a row with the European Commission now but its president Jose Manuel Barroso, in an unprecedented outburst, accused Ireland’s poor financial sector supervision of making a victim of the euro. The euro was not to blame for the country’s crisis, he said.

Economist Constantin Gurdgiev described Mr Barroso’s comments as “nasty and ill-judged” and said they were spoken out of fear that countries such as Portugal and Greece would put pressure on the EC to deliver a similar type retro deal.

He described the accusation that the euro was a victim of Ireland’s crisis as “nonsense” saying it was largely driven by low ECB interest rates and EU regulations.

Mr Kenny immediately moved to defuse the situation with Mr Barroso, speaking to him on the margins of the summit in Brussels. “There is not any row here at all,” he told journalists afterwards.

He insisted too that there was no difference of opinion with Mr Barroso over the various EU decisions on which Ireland is relying to recoup some of the €60bn it put into its banks.

The Taoiseach repeated that they agreed to consider recapitalising legacy bank bailouts on a case-by-case basis and a separate statement in which EU leaders agreed that Ireland was a special case since it was prevented from burning bondholders.

But senior EU sources continue to pour cold water on Ireland’s chances of recouping some of the cost of bailing out the banks that is almost entirely being funded by taxpayers. “It’s possible but highly unlikely”, he said.

However Mr Kenny suggested that the Government is taking the issue step by step, and the next one is when EU officials sit down in January to work out the mechanics of how the EU’s rescue fund, the ESM, could directly recapitalise banks.

“That will lead to a point where the possibility can be dealt with when the Single Supervisory Mechanism is in situ November next year,” he said.

The ESM earlier this year indicated that direct bank recapitalisation would result in the effective sale of the bank shares to them and at current market value — which could be as little as €2bn for the Irish banks.

But Mr Kenny said, “You have never heard me at any time refer to the sale of Irish banks — what we are doing here is following through on the concept that we want to reduce the level of debt on our citizens because of what they had to pay in respect of bank recapitalisation”.