German Chancellor Angela Merkel and French President Francois Hollande said Ireland is a “special case,” seeking to calm concern sparked by the German leader’s comments last week ruling out retroactive bank recapitalizations by the European rescue fund.
“Ireland is a special case and should be treated as such” Hollande said in Paris today at a press conference with Kenny, repeating the phrase used by Irish and German leaders in a joint statement yesterday. Merkel and Kenny spoke by phone about the “unique circumstances behind Ireland’s banking and sovereign debt crisis, and Ireland’s plans for a full return to the markets,” according to the statement.
Ireland stepped up its efforts for a retroactive recapitalization after a June 29 euro-region leaders’ decision paved the way for direct European bank aid. The Irish government has pledged or injected 64 billion euros ($84 billion) into the financial system, making it the world’s costliest banking rescue per capita since the Great Depression.
Merkel and Kenny “reaffirmed” the June commitment “to examine the situation of the Irish financial sector with a view to further improving the sustainability of the well-performing adjustment program,” according to the e-mailed statement.
Irish Finance Minister Michael Noonan said after Merkel’s comments on Oct. 19 that the chancellor was answering a question specifically in relation to Spain and not Ireland. Hollande said that the Europe’s permanent bailout fund could begin investing in the region’s banks next year and that France would be “supportive” if Spain decided to request a rescue program for the sovereign.
Spain secured a 100 billion-euro financial-sector lifeline earlier this year and so far hasn’t asked for aid that would unlock European Central Bank bond-buying. Ireland is aiming to exit its bailout program at the end of 2013, having already partly returned to long-term international credit markets in the wake of the June 29 commitment.
“While the use of terms such as ‘unique’ and ‘special case’ will presumably soothe some of the concerns that followed Merkel’s recapitalization remarks, the lack of any explicit commitments on the bank-debt issue means that these concerns are unlikely to entirely go away,” Philip O’Sullivan, an economist at Dublin-based NCB Stockbrokers, said in a note.
The yield on Ireland’s benchmark security due in October 2020 was little changed at 4.73 percent at 3.22 p.m. in Dublin, after earlier touching a new 12-month low of 4.69 percent. The yield on the bond has fallen from about 7 percent before the June summit and is down from 14 percent in July of last year.
Steffen Seibert, the German government’s chief spokesman, said in Berlin today that the Irish government has recapitalized the country’s banks “with large amounts of tax money and this will surely have to be looked at when the euro group takes up the topic of Ireland again.”
“The Germans and others recognize because we were the first to go into a program and because the previous government socialized our private bank debt and put a noose around the neck of the people of this republic, it is a noose that frankly if we don’t get some relief in time, we won’t be sustainable as an independent state,” Irish Education Minister Ruairi Quinn said in an interview with Dublin-based broadcaster RTE today.
Ireland sought an 85 billion-euro international rescue program in 2010 as the nation’s banking woes threatened to push it into bankruptcy and shut it out of credit markets. The country, which obtained a cut in the interest rate on its bailout as the Greek debt crisis worsened, is now aiming to capitalize on European Union steps to sever sovereign and bank debt.
“Merkel will have a hard time giving Ireland a special deal without the Spanish looking for the same treatment on direct bank recaps” from the European Stability Mechanism, said Megan Greene, an economist at Roubini Global Economics LLC in London. “In either case, however, retroactive bank recaps won’t be a game changer.”