With just over a month of funding left in Ireland’s €67.5bn three-year bailout, Irish prime minister Enda Kenny sent a subtly-worded letter to his fellow EU leaders as they gathered in Brussels today for their two-day summit.
At first glance, the letter (we’ve posted a copy here) seems to simply repeat messages that Kenny has made in the past: he’s weighing whether to request a line of credit after they exit the bailout; he wants quick completion of the eurozone’s “banking union”; he continues to hit his bailout targets.
But a closer read between the lines shows a more complicated game going on. In essence, Kenny is reminding other leaders they have failed to live up to promises made to Ireland last year that would have significantly lowered the Dublin’s sovereign debt levels. An annotated look at the letter after the jump.
My Government will soon review the best options for our exit, in discussions also with the Troika. The decision regarding such post programme options is a finely balanced one, both from an Irish perspective and from an EU perspective.
Translation: We’re considering asking the EU for a line of credit to help bolster our chances of returning to the bond market. Unless you help us out, this might not be the success you are all predicting.
Like other EU partners we rely on the stability of our Union, and of the Eurozone, to anchor our fragile recovery. The recent stabilisation of sovereign borrowing rates in the Union is a product of hard-earned trust – trust and confidence that that the Banking Union will be completed on time, and confidence that momentum will be maintained on our shared jobs and growth agenda. These political commitments must be implemented. No time should be lost in building on the decisions reached in 2012 and earlier this year on Banking Union legislation. We must hold firm to our deadlines for agreeing the remaining legislation on Deposit Guarantees and on a Single Resolution Mechanism.
Translation: Despite commitments to get banking union completed before European parliament elections next year, Berlin has been calling for treaty changes before the entire system is in place – particularly the single resolution mechanism, the Europe-wide bank bailout system – bringing negotiations to a crawl. That may eventually unsettle markets, and make Ireland’s exit more difficult.
It remains imperative, as we all agreed in June 2012, to break the ‘vicious circle’ between bank and sovereign debts that forced Ireland into a Programme in 2010, at a time when there was a different consensus in Europe on the merits of “bailing in” creditors of failed banks.
Translation: When Ireland bailed out its banks in 2010, the European Central Bank prevented Dublin from writing off senior bondholders, forcing Irish taxpayers to make them whole. Now, the ECB has changed its tune, wiping out senior bondholders in Cyprus and even proposing they get haircut in Spain. Negotiations are also underway that could require senior bondholders and uninsured depositors get hit before public money is used to bail out any European bank in the future. If that was the policy back in 2010, Ireland would have been able to write off billions in bank debt that taxpayers were eventually forced to pay for.
As compensation, when a new “direct recapitalisation” tool was created last year – which would allow European bailout funds to pump money directly into failed banks without saddling sovereign governments with the bill – Ireland was promised some debt relief for taking on the bank debt itself back in 2010. This hasn’t happened.
That shared task, indeed all the commitments we made then, remain to be fulfilled and are important for ensuring that Ireland’s return to full market financing is sustainable and that Ireland can be a durable success story for the entire Eurozone.
Translation: Live up to your promises, guys, and give us some debt relief.