EU debt talks - Election is sidelined by debt summit

THE response from Fine Gael’s Leo Varadkar and Labour’s Jan O’Sullivan to the suggestion that another €15 billion might be needed to recapitalise Ireland’s rotten banks should be welcomed by every one of us.

Speaking on Tuesday Government-appointed Anglo Irish chairman Alan Dukes warned that the €35 billion sacrificed to try to save the banks may not be enough and that the final figure might be nearer €50bn.

The prospective coalition partners reacted yesterday saying that if they were in Government the banks would not get “one more cent” unless they could show how bondholders were making a contribution towards dealing with the losses.

This line in the sand should have been drawn — and firmly held — quite some time ago. It is, after all, the very essence of capitalism that reward is balanced by risk.

Senior and subordinated bondholders have obligations and this is recognised by German Chancellor Angela Merkel who has initiated measures that will be introduced right across the EU in 2014 to ensure the burden of any banking loss is shared between governments and investors.

One of our EU colleagues is less patient. Just last weekend a minor Danish bank — Amagerbanken — was put into administration. The bank had assets of €2bn but liabilities of €3.3bn. The Danish government will cover the deficit but have imposed losses of 41% on senior bondholders. And, as yet, there are no reports to suggest that Denmark has collapsed.

Though we are preoccupied the election campaign there is a growing sense that the more pressing, relevant debate is taking place elsewhere.

The EU summit immediately after the election will have a huge impact on all of our lives. It has been characterised as a stand-off between Europe’s creditor nations — Germany and France — and those of us dependent on the “kindness of strangers”.

The March summit has also been described as the moment when the EU must decide whether it will give priority to the interests of all its citizens or to the hedge funds, the bondholders, the banks and all of those who make up Europe’s finance sector.

Angela Merkel and Nicholas Sarkozy want slow but steady growth and very little if any inflation to protect their banks and calm their voters. These conditions would spell disaster for creditor nations.

Feeble growth and our EU interest rate of 5.7% — plus various charges — on incredible levels of debt move the terrible prospect of sovereign debt all the closer. Even having to talk about this should send a shiver down the spine of those who would form the next government. It would have implications for all of the eurozone too.

The failure of politics has brought us here but it is not too late for all main parties to unite behind a single position that might have a positive impact at the March summit. We will need all of our diplomatic skills and powers of argument to avert what could be a truly appalling vista. There is no issue more important to any election candidate or citizen of this bankrupt country.