Clarity on Ireland and debt, but confusion in the eurozone remains
By Paul Cunningham, Europe Correspondent
After nine hours of talks by eurozone finance ministers, the Irish Government now knows both the process for the renegotiation of its banking debt and the target date for a decision.
A statement after the Eurogroup meeting said that officials from the European Commission, European Central Bank and International Monetary Fund – or troika – would examine “technical solutions to improve the sustainability of the well-performing [Irish] adjustment programme.”
The outcome of those negotiations with Government officials over the summer would then be brought to the September meeting of eurozone finance ministers.
In the news conference held shortly after 2am, European Commission Vice-President Olli Rehn told journalists that the target date for taking a decision would be October. This was something of a surprise, as the final statement only mentioned the issue being evaluated in September. Game on.
The stated aim of the Minister for Finance Michael Noonan going into the meeting had been to secure a process and timeline for negotiations, with a conclusion before December’s Budget. So it can be said that Mr Noonan got precisely what he wanted.
What the minister declined to do, however, was to put any figures on Ireland’s objective in these talks. Mr Noonan did say that Ireland’s “ask would be ambitious.” However despite valiant efforts by Brussels-based journalists like Ann Cahill, Sarah Collins and Arthur Beesley – the minister declined to say anything more, other than confirming that the Government’s strategy was no longer simply limited to renegotiating Anglo-Irish promissory notes.
While the outcome for the meeting is a positive one for the Government, the real work starts now. After campaigning for months to renegotiate the banking debt, which became part of the national debt, ministers like Michael Noonan have to actually cut a deal. It’s on the outcome of these important discussions that the Government will be judged. And October is just three months away.
On Spain, things are less clear-cut. The eurozone finance ministers did reach a “political understanding” on the bailout, which will now be considered by parliaments in Germany, Finland and the Netherlands. No hitches are expected, with confirmation on the deal expected by 20 July. They also agreed to relax Madrid’s deficit reduction target by one year. Chair of the Eurogroup Jean-Claude Juncker said that €30 billion would be made available to Spanish banks by the end of the month, should emergency access to funding be required.
However there remains confusion over what the implications are going to be for Spain. Last month, EU leaders spoke about wanting to “break the vicious circle between banks and sovereigns.” It seemed to have been agreed that bailout funds would be able to recapitalise banks directly, rather than having to make the money go onto the country’s national debt.
That said, conditions would apply – for example, Spanish banks seeking recapitalisation would have to pass stress tests and institute structural reform. It was also stated that a pan-European banking supervisory facility having to be put in place first.
At the Eurogroup news conference last night, President of the Eurogroup Jean-Claude Juncker confirmed that once EU leaders finalise a new eurozone banking supervisor, loans will go directly to troubled banks. Because the supervisor does not currently exist, the €30 billion being made available to Spanish banks by the end of July, would have to go on the national debt. However, the debt would be wiped from Spain’s sovereign books, once the supervisor was in place.
But that is going to take time, according to the powerful German Finance Minister Wolfgang Schäuble. Die Spiegel reported him as saying: Those individuals who claimed that banks could have direct access to the ESM within a few months were awakening false expectations on the financial markets. That was not good, he added. “It must be made clear that nothing is going to happen quickly,” Mr Schäuble said.
Looking back at the track record of the finance ministers to date, that seems like a fair bet.