Holding on the line

The public and the opposition are still waiting to hear whether the Government will be able to negotiate a better deal on our bank debt, writes political correspondent Mary Regan

DID she hang up on you?” That’s what one opposition TD demanded to know about Enda Kenny’s phonecall last Friday with German chancellor Angela Merkel.

It is a question that, as yet, remains unanswered: Has the German leader effectively slammed down the receiver on any pleas for an easing of bank debt in return for the yes vote in the EU fiscal compact referendum? Or will Ireland be able to piggyback on a possible rescue of Spanish banks with EU funds to get a better deal on our own bank debt?

During angry exchanges in leaders’ questions in the Dáil yesterday, Mr Kenny repeatedly failed to reveal the German chancellor’s response to his calls to have the bank debt dealt with.

And opposition TDs complained that they were still none the wiser on what exactly the Government was looking for.

Ever since the Fine Gael and Labour coalition gave up on its pre-election promise to burn the Anglo Irish Bank bondholders, it has been telling us that the debt burden will be reduced instead through re-arranging the terms of the promissory notes.

It has had little success on this issue so far. The Department of Finance said yesterday that the issue was still being pursued but there was still no sign of the long-promised “technical paper” on promissory notes from the troika.

In the wake of the referendum result last Friday, Mr Kenny held a press conference at Government Buildings, declaring the vote would strengthen the Coalition’s hand in pushing for a reduction on the crippling bank debt.

But the Coalition has once again changed tack on how it will reduce the burden and focus has shifted away from the promissory note.

It now hopes that any moves to have the troubled Spanish banking system rescued by the European Stability Mechanism (ESM) — the proposed €500bn permanent rescue fund — could provide a template for other countries including Ireland.

Describing how this would work, Transport Minister Leo Varadkar said: “There is a long-standing precedent in Europe that if a country down the line gets a better arrangement than one that had an arrangement prior to that, that country gets retrospectively treated fairly.

“If you sign up to something early and the conditions improve, the principle in Europe has always been that those better terms are applied retrospectively to the country that went in first.”

During leaders’ questions yesterday, the Taoiseach dampened expectations of an any immediate developments, insisting there would be no “quick fix” to the issue.

He told the Dáil that he spoke to Ms Merkel by telephone last Friday and also to European Commission president José Manuel Barroso.

He said he “made it clear to the leaders that it was perfectly obvious that a resolution needs to be brought about in respect of the banking situation.”

And he said he was “happy to note” that “Europe is now having a proper debate on the question of a separation of the sovereign from bank debts”.

In other words, any move would lead to the removal of the bank burden from the shoulder of the taxpayers.

“It is the start of a strategy which I hope will bring a political conclusion to the issue,” he said.

About €64bn has already been pumped into the Irish banking system, including €30bn of loans for Anglo Irish Bank.

If the €21bn provided by the National Pension Reserve Fund is removed, the remaining €43bn could be shifted from being the State’s debt to the books of the banks under any deal involving ESM access for banks.

The Taoiseach told the Dáil he was “the first to make the point, in Dublin Castle some weeks ago, regarding the possibility of licensing the ESM for direct injection into the banking situation”.

He said: “I am glad this position has gained credence with a number of countries and leaders.”

We know that it would more than likely have the support of the European Commission. There is also hope in Government circles that the ECB could be supportive of such a move because it would reduce Irish banks’ reliance on its funding.

The ECB president, Mario Draghi, cautioned yesterday that the referendum result should not be used as a bargaining chip for securing a deal on its banking debts.

He said there was not “any ground or statement for a quid pro quo” linking ratification of the deal to an arrangement on bank debt.

But the most significant player is Angela Merkel. Germany — as the largest contributor to the ESM — has a veto over the use of funds and is in a position to ensure that Ireland’s onerous bailout terms remain in place.

That is why TDs yesterday demanded to know what Ms Merkel said during that telephone conversation.

Mr Kenny dismissed comments from a German government spokesman, who said on Monday that re-opening the bank issue would send “negative signals”.

Martin Kotthaus, spokesman for finance minister Wolfgang Schauble, said: “We see no need for movement at the moment.”

The Taoiseach said this was an official who was quoted, and not a politician. But we are still none the wiser on Ms Merkel’s response was.

His inability to set out how the Government would capitalise on the referendum yes vote to secure a deal on bank debt, resulted in one of the Taoiseach’s worst performances in leaders questions to date.

And if appeared that even Fianna Fáil — discredited as it is on the bank debt issue — finally found a stick to beat him with.