An election campaign fought on the basis that Ireland will renegoiate the terms of its €85 billion EU/IMF bailout appears to have paid off as the centre-right party, Fine Gael, clinched a resounding victory during this weekend’s elections.
Today (28 February) Fine Gael will begin coalition talks with the Labour Party, which secured the second highest number of seats in the 150-seat parliament.
“We made it clear that we were coming out here to send a signal that if we get a mandate from the people in the general election at home that we would see the need for a renegotiation of aspects of this package,” Fine Gael leader Enda Kenny said at the outset of his party’s election campaign.
Fine Gael and Labour’s win is widely portrayed as reflecting Irish resistance to the current terms of its EU bailout. However, talks on forming a coalition, due to start today, may be hampered by a disagreement on what kind of concessions they should seek in Brussels at the next summit on 11 March.
Though both parties agree that they should seek to lower the bailout’s agreed 6% interest rate, Fine Gael does not share Labour’s view that the EU should extend Ireland’s deadline to lower its deficit.
As part of a bailout package agreed in November 2010, Ireland should lower its public deficit to 3% by 2014, a condition Labour wants to extend by one to two years.
Both parties want the coalition talks to pass quickly because they will have to face EU leaders in Brussels just two days after their first sitting in the Irish parliament, the Dail.
“You do not want the wrong signal of indecisiveness being sent out to European governments ahead of meetings in March,” Enda Kenny, Ireland’s new prime minister – or Taoiseach in Gaelic – said on Sunday.
Michael Noonan, Ireland’s incoming finance minister, believes Fine Gael is best placed to bargain with the EU on interest rates as it is a member of the same political party in the European Parliament as European Commission President José Manuel Barroso and German Chancellor Angela Merkel – the European People’s Party.
Bargaining with Germany
As the EU’s official bailout fund, the European Financial Stability Facility, depends on Germany’s AAA credit rating, Irish politicians will have to go on a charm offensive with German leaders.
Germany has previously indicated it is open to renegotiating the interest rate attached to Ireland’s loan in exchange for a constitutional limit on the country’s spiralling debts. Bulgaria is the latest EU country to insert a debt brake into national law.
“We can look at this if countries at the same time would be willing to accept a kind of national fiscal framework to be enshrined in their constitution, yes,” said Jörg Asmussen, a senior official in the German Finance Ministry.
Noonan also paid lipservice to the propsect of giving Ireland’s bondholders a haircut, a move that should please German Chancellor Merkel, who recently urged Ireland to enter into negotiations with its private debtors. At the last count, Ireland’s private debtors held unguaranteed bank debt to the tune of €15 billion.
Eurozone leaders will meet in Helsinki on 11 March to finalise plans for a permanent loans facility to replace the temporary European Financial Stability Facility which was set up to bail out Greece in the first instance.
The EU’s 27 leaders will attempt to secure a deal on this and a package of legislative reforms to prevent countries from accruing insurmountable debts when they meet in Brussels on 24 March.