Beyond the technical and legal details, negotiators know any concessions to Ireland require wider political support in Europe

Lucinda Creighton fairly bounced out of Berlin’s foreign ministry on Monday evening. A long day of meetings ended for the Minister of State for European affairs over dinner with senior German government officials.

The menu of duck with pumpkin dumplings was as wintry as the snowy streets outside, but Creighton was pleased to find the dinner table talk warm and “very upbeat” towards Ireland.

“I had very positive signals that the German government is fully supportive of the Irish request to resolve the promissory note issue,” she said. “There was very explicit support for a deal.”

Other diners confirmed her reading of the runes. After years of negotiations, where the word “breakthrough” has ceased to have all meaning, was this another mirage or a significant step forward?

Legally speaking, Berlin has nothing to do with the €30.6 billion promissory note, loans granted in 2010 by the European Central Bank (ECB) to stabilise Anglo Irish Bank and Irish Nationwide.

Government talks to ease the debt burden of this loan by extending the 10-year repayment plan – and thereby reducing the annual €3.1 billion repayments – are being conducted exclusively with Frankfurt.

The next day, senior officials in several cities with knowledge of the talks insisted the situation was “delicate” and “extremely sensitive”. Central Bank Governor Patrick Honohan rowed in to insist that any deal is far from “done and dusted”. Not everyone was thrilled by Creighton’s public assertions, but no-one denied them either.

But, beyond the technical and legal details, concessions to Ireland require wider political support around Europe.

Thus Creighton travelled to Berlin to tell an audience at the Konrad Adenauer Foundation that such a deal was “in Ireland’s interests but also in the European interest”.

Hers was the latest in a concerted Irish campaign since the new year to convince Germany that all is not well in Ireland and that further concessions are needed to ease the country’s debt burden.

Sullying one’s own stellar reform reputation is a risky negotiating strategy but, by and large, the German media has picked up on and amplified this message in a differentiated fashion.

This week it was the turn of the Handelsblatt business daily to note that, despite Ireland’s “remarkable” progress, it faces a “fragile recovery” where “not all is rosy”.

In an interview, Tánaiste Eamon Gilmore compared Ireland to the fabled Dutch boy who stuck his finger in the dam to stop a devastating breach.

“The curious thing,” he said, “is that we were left standing at the dam and the Irish taxpayer had to carry the consequences.”

Behind closed doors

As technical talks continue behind closed doors, the Government’s public campaign for debt concessions is aimed at minimising the potential of political blowback from European capitals. Thus the significance of last Monday’s “upbeat” dinner.

“We have the impression that Chancellor Merkel is very well-informed and understands the need for a promissory note deal,” said a senior Government source in Dublin.

“While we don’t have a huge amount of wriggle room with the ECB, we don’t imagine that Berlin would try to obstruct anything.”

That’s not altogether surprising: the more the ECB does for Ireland, the lower the remaining debt problem to be addressed by EU partners.

For its part, Berlin is anxious not to comment in public on the promissory note talks, fearing accusations that it is trying to influence the independence of the ECB. But this reticence to talk should not be interpreted as doubts about the need for a deal, rather a determination not to rock the boat until the deal is done.

At this week’s Bundestag budgetary committee meeting, Germans MPs discussed the European Commission’s latest progress report on Ireland – and its demand for EU leaders to spell out precisely what last June’s summit agreement means for Ireland’s debt burden.

“There is a risk that hard-earned progress could be destroyed”, the report warned, “if progress takes longer than one can fairly expect.”

That message was taken to heart, one participant said. Ireland is viewed as a good bailout example, the participant added, but there is an awareness that its debt sustainability will require careful attention this year.

“The troika and the euro zone would be well advised to do nothing that would endanger Ireland’s progress,” said CDU budgetary spokesman Norbert Barthle.

Room for agreement

A close ally of Merkel, Barthle said he is optimistic about the room for agreement on the promissory note.

“I would see no negative consequences if the repayments were extended to ease the burden on Ireland,” he said. “As far as the repayment period is concerned, an extension could make sense.”

He added that “these IOUs from Anglo . . . have to be treated separately” to the bank recapitalisation talks. Barthle sticks to the German government line that no recapitalisations are possible until the EU’s banking union is operational.

Negotiations on this point are currently taking place between EU capitals, with reports that Berlin and others are attempting to dilute last June’s agreement. What does this mean for Ireland?

In public, Berlin continues to insist that “direct recapitalisation of Irish banks is not necessary” and that problems that occurred on the watch of national banking regulators will remain the problem of each member state.

Any further financing requirements, German officials say, can be covered by applications to the ESM bailout fund. Their hard line is rooted in a concern that carte blanche for so-called legacy debt would see the ESM bailout fund haemorrhage capital, creating new stability problems for the euro zone.

In the final analysis, however, German officials familiar with Berlin’s negotiating position concede that concessions will have to be made on all sides on the issue of bank recapitalisation.

The Irish case is “unlikely to be wiped from the table entirely, with some concession possible” this year, according to one informed Berlin source.

But, on bank recapitalisation, Berlin is anxious not to stir up the many bailout critics on the government backbenches.

Klaus-Peter Willisch, a CDU MP from Rheingau near Frankfurt, has voted consistently against all EU-IMF programmes presented to the Bundestag – though he insists this is nothing personal against Ireland.

“If I thought any country would make it, then it was Ireland,” he said. “But once you start down this [bailout] political road, you will always be confronted with requests to improve the terms which people feel obliged to grant rather than admit the strategy was wrong to begin with.”

On Ireland’s promissory note request, he said: “I already have my doubts about everything the ECB’s doing so I would be wary of loosening the terms further.”

In this election year, critical voices can be heard on the opposition banks, too. The Social Democrat (SPD) finance spokesman Carsten Schneider said it is “understandable that the Irish Government insists on the implementation” of last June’s “special treatment” promise to look again at its programme sustainability.

Election promise

With an eye on the upcoming election, however, the SPD has made a campaign promise not to allow any recapitalisations from the ESM fund.

“In that case the bank burdens are distributed among all taxpayers in all of Europe,” said Schneider. “Aggravating Ireland’s case is its unwillingness to talk about its corporate tax or a financial transaction tax. Countries that accept community solidarity but aren’t ready to support community initiatives cannot count on future SPD support for financial assistance.”