IT WON’T go away. Another Sunday in Brussels, another round of frantic politicking over the untamed sovereign debt crisis. Ireland’s €85 billion bailout is now a done deal, but EU leaders are struggling to limit the rot. rescue to debate on bailout schemes smacks of concern
As anxiety that the worst is still to come grips markets, Ireland was but one of the agenda items as European governments took new steps at an emergency meeting to damp down the flames. A declaration by euro finance ministers marked a slight dilution of German demands to foist bailout costs on private investors. Whether markets will be convinced is anyone’s guess.
It was just after lunchtime when Minister for finance Brian Lenihan joined his European counterparts to hammer out the final terms of Ireland’s ignominious rescue.
Lenihan said nothing as he swept into the meeting but agreement was close. “The assistance plan for Ireland is almost wrapped up. I believe the end of the negotiations are in sight,” French economy minister Christine Lagarde told reporters.
“We still have a few little details in the composition to rework and to finalise, particularly on the interest rate. Therefore we’re going to go to work.”
Still in question as the Irish talks neared their conclusion was whether senior bank bondholders would be compelled to participate in the bailout. A well-versed source said the force of market turmoil on Friday – after The Irish Times disclosed that measures to force a contribution from top-ranked debt-holders was on the table – was enough to bury the notion.
The threat to senior bondholders was but a variation of a debate raging in Europe since German chancellor Angela Merkel revved up her push to demand a contribution from private investors when the EU’s temporary bailout mechanisms are made permanent in 2013. Although Ireland’s increasing frailty had been apparent for many months, Merkel’s unerring insistence on this front was a prime driver of the market volatility which led to the bailout.
Fresh moves to foster confidence in the markets came on Friday as a succession of Iberian leaders took to the airwaves to deny any clamour for a new round of bailouts. As the phone lines between Dublin, Brussels, Frankfurt and Washington lit up on Saturday to settle the finer detail of the Irish pact, the initiation of talks between other capitals pointed to a new effort to calm down the wider conflagration.
When EU Commission chief Jose Manuel Barroso phoned Cowen yesterday morning, a drive to go beyond Irish intervention was already well in train.
At the commission’s base in Brussels, Barroso met euro group chief Jean-Claude Juncker and European Council president Herman Van Rompuy, and they took calls from Merkel, French president Nicolas Sarkozy and European Central Bank chief Jean-Claude Trichet. They also took calls from Spanish premier Jose Luis Zapatero and his Italian counterpart Silvio Berlusconi.
In question was what precise signal they might send to markets to ease the tension. In effect, they brought forward the political debate on private sector involvement in bailouts by a matter of weeks.
As the talks continued amid reports of a new Franco-German pact on burden-sharing, economics commissioner Olli Rehn presented a “non-paper” from the EU executive on the creation of a permanent rescue mechanism. This document – essentially a draft proposal from the commission – states that any private-sector involvement in bailouts should be organised in line with IMF principles.
That means bondholders would not be automatically compelled to take a discount “haircut” on their receivables and the argument for any contribution they would make would be examined on a case-by-case basis.
EU leaders deny further interventions are in prospect. Still, their swift move from Ireland’s rescue to advanced debate on permanent bailout schemes smacks of acute concern.
The crisis goes on and on.
