European Union leaders are expected to discuss later on Wednesday the idea of regional bonds jointly underwritten by all euro zone member states. New French President Francois Hollande supports the proposal but German Chancellor Angela Merkel is opposed to it.
Following the election of François Hollande as French president there were fears he might seek to have the existing treaty provisions reopened with damaging consequences for the Government’s referendum campaign.
However, Irish officials are confident Mr Hollande’s strategy now is to get agreement on a growth package to go hand-in-hand with the treaty provisions. “The need for an emphasis on growth at EU level is something the Taoiseach has been advocating since he took office and today’s summit could be a decisive step in that direction,” said one Government source.
Separately yesterday, Minister of State for European Affairs Lucinda Creighton accepted that Ireland may need a second bailout and she said the country’s 12.5 per cent corporation tax could be threatened by a No vote.
She said if Ireland excluded itself from the European Stability Mechanism by voting No, other European countries that might contribute to a fund on which Ireland could draw might put other issues into the mix.
In Brussels, Irish Ministers are hoping that positive noises from tonight’s dinner in Brussels will help the referendum campaign as it enters its final week although agreement on the details of a growth package is not expected until the next major two-day EU summit at the end of June.
While Mr Hollande campaigned in the French presidential election to have specific growth measures inserted into the fiscal treaty, officials involved in the summit expect he will not push tonight for a deal to reopen the pact. It means Mr Kenny will be facing into the final phase of the referendum campaign with the treaty intact.
The proposed growth initiative includes a big expansion of lending powers for the European Investment Bank and a new effort to free up unspent EU structural funds.
Mr Kenny will travel to Brussels for pre-summit talks this afternoon with centre-right leaders from the European People’s Party, Fine Gael’s affiliate in EU affairs. Tánaiste Eamon Gilmore will also be in the city to meet Socialist group leaders.
The summit is overshadowed by the uncertain outlook for Greece and Spain and divisions over demands from Mr Hollande to step up the battle against the debt crisis by introducing jointly-issued eurobonds.
German chancellor Angela Merkel remains steadfastly opposed to this notion until Europe embraces greater fiscal discipline and she is supported by the leaders of the Netherlands, Finland and Austria. “We are not going to mutualise anything until we have guarantees,” said a close Merkel adviser, citing Ireland as a reason why pooled sovereign debt was not a runner for Berlin.
“If Ireland were to build up its banking sector again to a level where Ireland alone cannot support it, we would have no input over the support. That’s not going to happen.”
Against deepening worries over Spanish bank finances and concerns that other debt-laden countries would tumble should Greece break away, new French President Francois Hollande, a socialist, and German Chancellor Angela Merkel will discuss so-called eurobonds under moves to re-balance austerity with measures to kickstart growth.
The former French finance minister currently at the head of the International Monetary Fund, Christine Lagarde, added to Organisation for Economic Co-operation and Development (OECD) pressure by saying in London on Tuesday that "more needs to be done, particularly by way of fiscal liability sharing".
Economists already anticipate the European Central Bank unleashing a new round of cheap, plentiful money for banks, and after European Union president Herman Van Rompuy called for "no taboos", France maintains all ideas will be on the table.
Backers saw signs of progress on Tuesday when EU governments agreed to trial pooled -- but not mutually backed -- borrowings.
In a bid to attract long-term private investment, "project bonds", using 230 million euros from the EU budget this year and next, are expected to unlock 4.5 billion euros ($5.7 billion) of total public and private-sector investment.
Hollande has still to navigate French legislative elections wrapping up on the same date, June 17, and must also walk a fine line awaiting European Commission recommendations for the management of public finances due at the end of May.
We doubt that Wednesday evening's EU summit will result in many ground-breaking concrete agreements, that European policymakers have agreed to put more weight on growth but have not formed a consensus on how to achieve it.
It seems unlikely that market confidence will return until there is more visibility about developments in Greece, and Europe more generally,
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