Mixed signals on possible bank debt deal

In the aftermath of the referendum on the fiscal stability treaty, the focus now needs to return to promoting economic growth and recovery and increasing stability, both in Ireland and the eurozone as a whole at a time of continuing uncertainty. The Irish people have sent a strong statement of support for the building of a more stable eurozone with a decisive result in favour of the treaty, and it is now crucial that there is a more concerted effort at a European level for all countries to start working together to not only stabilise the single currency but also to drive the growth agenda. The latter cannot happen without the first, and so there is a particular urgency in resolving the major debt difficulties in the eurozone, which would create the conditions needed for recovery. There is no doubt that this has been a challenging time for Ireland's relationship with Europe and the Irish electorate was faced with a tough choice when weighing up the pros and cons of the fiscal treaty. Sensibly, a majority saw the benefits of approving the treaty outweighing the cons, particularly the availability of ESM funding should the country require a further bailout if international markets are still shutting us out next year. However, with events in Europe rapidly unfolding, the satisfaction in Europe with the Irish referendum result has been short-lived. The escalating Spanish banking crisis, combined with the uncertainty surrounding new Greek elections in mid-June - which could see Greece exiting the eurozone - has heightened global alarm about further economic turbulence. Spain has called for outside funds for the first time to battle its financial crisis as it bids to shore up the country's lenders. Whether or not Spain's problems could present an opportunity to Ireland for a deal on its own bank debt remains to be seen. If Spanish prime minister Mariano Rajoy gets his way and a Spanish bank bailout is funded by the ESM, the argument goes that Ireland also would be justified in demanding that banking debt concessions to Spain should also apply retrospectively to this country. However, Germany appears to have poured cold water on this hope this week, saying a special deal for Ireland would 'send the wrong signal' - although the Irish government has played down the German comments, saying that discussions are ongoing on the issue. With €60 billion-plus having been poured into Irish banks, any deal to ease this burden on Irish taxpayers could have the effect of loosening the straitjacket of this crippling debt. Germany is the largest contributor to the ESM and thus has a veto on how the funds are used. However, it would be extraordinarily unfair if the Spanish were to get a deal on their property debt-laden banks while refusing to grant concessions to the Irish government. With the goodwill generated by the Irish referendum result, Taoiseach Enda Kenny should use this in whatever way possible to try and secure some kind of deal on our bank debt, particularly as German Chancellor Angela Merkel has conceded that the Irish vote deserves "particular recognition and respect" in the context of the economic difficulties the country has endured over the past four years. However, it is becoming clearer by the week that a more far-reaching solution may well be needed for Europe's debt mountain as the structural flaws of the euro and the debt problems of southern eurozone economies reach crisis level. The latest developments in Europe may mean EU member states will need to move towards a deeper integration in an effort to survive. This is likely to mean ceding more national sovereignty to preserve the country's economy. It may well be that, in the near future, in order to save the euro, this country could be faced with a simple choice of full fiscal union, with our tax rates and spending decisions being made centrally in Brussels, or exiting the single currency and returning to the punt and going it alone. Neither choice is palatable but the next referendum in Ireland could be one that presents this stark choice to the electorate - unless European leaders can come up with a workable and imaginative solution to put this protracted currency crisis behind it once and for all.