Peter Spiegel

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Enda Kenny, Irish prime minister, campaigning ahead of February's general election.

For most of the last two months, Enda Kenny appeared to be on the verge of becoming the latest political casualty of the eurozone crisis. After leading Ireland through a brutal three-year bailout, Mr Kenny saw his Fine Gael party drop more than 10 percentage points in February’s general election, meaning his coalition with the Labour party no longer had enough seats to return to government. A grand coalition with historic rival Fianna Fáil seemed out of the question, and it would be hard to survive as Fine Gael leader if the country was forced into another elections.

But now Mr Kenny is on the verge of returning as Taoiseach (Irish for prime minister) after all, striking an uneasy peace with Fianna Fáil that would allow him to head a minority government with some independent allies. If he succeeds, it would be a first in the bailout era: Portugal’s prime minister lost his job in elections last year, and Greece has seen two different prime ministers ushered out of office after two successive bailouts. Spain’s Mariano Rajoy, the only other bailout premier to face the voters, is headed back to new elections after failing to cobble together a coalition. Read more

Peter Spiegel

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Mr Kenny does some last-minute campaigning in Dublin ahead of today's general election

Elections are held in a onetime bailout country, and the incumbent party wins – but without enough support to cobble together a governing coalition. It happened in Portugal back in October, in Spain in December, and it seems the most likely scenario to play out today in Ireland, where voters go to the polls for the first time since Dublin emerged from its eurozone rescue two years ago. The Irish Polling Indicator, a daily tally of opinion surveys, has the Fine Gael party of prime minister Enda Kenny at just 28.5 per cent, with coalition partner Labour at 6.5 per cent. “Hung Dáil looms,” declares the Irish Times.

Given Ireland’s unusual political history, finding parties for Fine Gael to partner with (other than Labour) is no easy task. Unlike most Western European democracies, Ireland’s modern party system didn’t really develop on a traditional left-right spectrum. Instead, it’s more of what political scientists term a “centre-periphery” model, originally defined on Ireland’s relationship with its former masters in London. During the Irish Civil War, those who backed the 1921 Anglo-Irish Treaty, which gave Dublin independence, went on to become Fine Gael; those who thought the treaty didn’t go far enough (mainly because the new Irish Free State didn’t include Northern Ireland) eventually became Fianna Fáil.

For those historical reasons, a “grand coalition” of the country’s two main political parties would be an anomaly – despite narrow policy differences (indeed, the Irish Times recently posted a video entitled “What’s the difference between Fianna Fáil and Fine Gael?”). To this day, Fine Gael is seen as the party of Dublin’s professional elites, and that division has been exacerbated in the post-bailout environment, where Dublin has thrived but the countryside has failed to rebound. The FT’s Ireland correspondent Vincent Boland has a look at those divisions in his pre-election report from Limerick. Read more

Peter Spiegel

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Mr Kenny with Irish president Michael Higgins after formally dissolving parliament Wednesday

To date, no eurozone leader who has guided his country through a bailout has emerged politically unscathed on the other side. Portugal’s Pedro Passos Coelho was deposed as prime minister in November after inconclusive general elections. Earlier last year, Greece’s Antonis Samaras suffered a similar fate at the hands of leftist Alexis Tsipras. And Spain’s Mariano Rajoy is looking increasingly unlikely to win back the premiership in Madrid after informing King Felipe VI this week that his coalition-building efforts were going nowhere. Can Enda Kenny end the losing streak?

The Irish prime minister asked for parliament to be dissolved yesterday, setting the stage for a three-week sprint to election day on February 26. Mr Kenny is already touting his economic record, and to any outsider, that would seem to be enough to put him over the top. Ireland is expected to be the fastest-growing economy in the EU in 2016, which would be the third year running. Its unemployment rate of 8.6 per cent, while still high, is lower than the eurozone average and well below the 14.7 per cent rate when Mr Kenny assumed office in 2011.

Despite that record, opinion polls have stubbornly shown his Fine Gael party unable to get much above 30 per cent, a good-sized decline from the 36 per cent they took in the last general election. More troublingly for Mr Kenny is the demise of his coalition Labour party, which has seen its support cut in half. Without Labour, it’s unclear who Fine Gael would go into coalition with – which could produce a similar result to that faced by Mr Rajoy and Mr Passos Coelho, who emerged from their elections atop the largest party, but one too small to cobble together parliamentary majorities. Read more

Peter Spiegel

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Apple's campus in the Irish town of Cork

For the first time since the so-called LuxLeaks scandal broke more than a year ago – where documents leaked showing hundreds of multinationals had received extremely favourable tax treatment in Luxembourg – the issue of corporate tax avoidance has suddenly moved back into the spotlight thanks to actions taken by both London and Brussels to begin clawing back millions in allegedly underpaid taxes.

Tomorrow, Pierre Moscovici, the former French finance minister who now oversees tax issues for the European Commission, is due to unveil the latest in a series of measures aimed at cracking down on “sweetheart” tax deals. Mr Moscovici’s task today will be as much political as financial, since his boss Jean-Claude Juncker was Luxembourg prime minister when the LuxLeaks deals were struck and has suffered some political damage as a result.

Alex Barker, who long covered corporate tax issues for the FT Brussels bureau, has tallied up the windfall for treasuries thus far and asks whether the headline numbers, which seem big, are actually that big at all:

The long suffering European taxman is looking for redress. Over the past three months alone roughly €1.25bn has been clawed back from multinationals across the EU, led by the European Commission’s series of cases brought against companies in Belgium, Luxembourg and the Netherlands, which Mr Moscovici will no doubt tout today. It all sounds impressive. But scratch the surface and an enduring truth becomes clear: tax collectors are usually more hampered by European politics than helped.

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Jean-Claude Trichet, right, with the parliament's economic committee chair, Sharon Bowles

The troika of bailout lenders has not been getting much love at the European Parliament’s ongoing inquiry into its activities in recent weeks. But the criticism is not just coming from MEPs in the throes of election fever. Predictions of the troika’s demise have come from some unexpected quarters, including current and former members of the European Central Bank executive board.

During the hearings, MEPs have particularly criticised the troika — made up of the International Monetary Fund, European Commission and the ECB — for its overly optimistic growth forecasts for bailout countries, which have been repeatedly revised downwards. Perhaps unsurprisingly, they have also suggested that the troika be subject to greater parliamentary oversight.

Hannes Swoboda, the Austrian social democrat who heads the centre-left caucus in the parliament, went further, saying the body is undemocratic, hostile to social rights and that the EU would be better off without it. Read more

Peter Spiegel

Mario Draghi, left, stands next to Noonan at last week's finance ministers' meeting

Given the eurozone crisis has, for more than a year, failed to seriously rankle the financial markets, those of us still preoccupied with its aftermath and how it is changing Europe can occasionally feel like a small band of obsessives offering up Talmudic pronouncements of interest to a dwindling number of fellow crisis junkies.

But occasionally one of those textual debates rises to the level of importance that’s worth the attention of a broader audience. And one of those occasions seems to have occurred over the last couple of weeks regarding Ireland and the European Central Bank’s bond-buying programme, known as Outright Monetary Transactions (OMT).

For those who haven’t been following this obsessively, the discussion is important because most officials and market analysts credit OMT with, essentially, ending the hair-on-fire phase of the eurozone crisis last year. Read more

Peter Spiegel

Ireland's Enda Kenny, left, and Germany's Angela Merkel meeting last year in Berlin

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.

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Ireland’s recent history is a story of hopes dashed. Hope is now being stoked again, not least by those with the most interest in being positive: the Irish government and European lenders.

For Europe, Ireland is the poster child for austerity and must, just must, be recovering. Some positive jobs figures, showing the first growth in employment since 2008 (on which more later) have prompted what passes for elation in the depression-hit island.

 Read more

Peter Spiegel

Finance ministers MIchael Noonan of Ireland, center, and Vito Gaspar of Portugal, right, with the EU's Olli Rehn at January's meeting.

After Greece last year won a restructuring of its €172bn rescue that included an extension of the time Athens has to pay off its bailout loans, Ireland and Portugal decided they should get a piece of the action, too.

So at the January meeting of EU finance ministers in Brussels, both Dublin and Lisbon made a formal request: they’d also like more time to pay off their bailout loans. According to a seven-page analysis prepared for EU finance ministry officials a few weeks ago, though, the prospect is not as straight forward as it may seem.

The document – obtained by the Brussels Blog under the condition that we not post it on the blog – makes pretty clear that while an extension might help smooth “redemption humps” that now exist for Ireland (lots of loans and bonds come due in 2019 and 2020) and Portugal (2016 and 2021), it’s not a slam dunk case. Read more

Peter Spiegel

Over the course of the eurozone crisis, the relationship between EU leaders and credit-rating agencies has been, at best, a love-hate one, with officials frequently lashing out at the three major sovereign raters for the timing and severity of their downgrades.

So it was probably with some Schadenfreude that those same officials learned of the news that the US Justice Department will soon file a civil suit against Standard & Poor’s – arguably the most prominent of the rating agencies – for misleading investors when it gave gold-plated endorsements to US mortgage-related securities before the 2008 financial crisis.

But what happens when S&P starts pointing out that some of the most criticised eurozone policies – the austerity measures aimed at forcing internal devaluations in struggling peripheral countries – may be working? The silence thus far has been deafening. Read more

Peter Spiegel

Ireland's Kenny, right, with European Commission chief Barroso at start of the Irish EU presidency.

Ireland appears to be taking advantage of the comparatively positive sentiment in the eurozone that has marked the start of the year by moving back into the bond markets in a major way.

Last week, Dublin raised €2.5bn by issuing additional five-year government bonds, and then days later was able to convince private investors to buy €1bn in debt it holds in one of the largest banks nationalised at the peak of its banking crisis. This morning, the government was at it again, announcing a €500m auction in short-term t-bills will take place tomorrow.

Despite the winning streak, there’s still a lot of nervousness in official circles about whether Ireland can fully emerge from its bailout when its €67.5bn in rescue loans run out in November. All this has led to a debate in Dublin about whether Ireland should seek additional aid, such as a line of credit from the International Monetary Fund or the EU – which would be backed by the European Central Bank’s new limitless bond-buying programme – to provide a backstop to new Irish bonds.

The Irish website got its hands on the new European Commission report on the Irish bailout, which makes clear on page 44 that Dublin is in discussions with the troika about whether the ECB’s bond-buying programme – known as Outright Monetary Transactions – can be accessed: Read more