EU LEADERS are working to ring-fence the arrangements for a new Greek bailout in a bid to ensure the pact does not damage Ireland and other frail euro zone countries.
Political and diplomatic activity is to intensify this week as the European authorities pursue a “grand bargain” deal at a summit next Sunday to finally assert control over the sovereign debt crisis.
The preparations come amid talks between the Government and the EU-IMF-ECB troika on the latest review of Ireland’s bailout, an engagement in which the sale of State assets remains contentious.
The new plan for Greece will rework crucial parts of a second bailout arranged in July.
In a fresh bid to bring the country’s debt to a more sustainable level, private holders of its sovereign bonds will be asked to bear much bigger losses than anticipated in July.
There is anxiety in Dublin and other capitals that this could prompt market investors to speculate that other bailout recipients like Ireland and Portugal might follow suit.
At a time of heightened market volatility, any such pressure would make it much more difficult for the Government to prepare Ireland’s return to private debt markets next year.
Although notional Irish borrowing costs have fallen appreciably in recent weeks, the Government fears that bond yields could rise again suddenly.
In recognition of such concern, a senior European official involved in the summit said EU leaders were likely to make a specific pledge to rule out any form of debt restructuring by any other country in an EU-IMF rescue programme.
Taoiseach Enda Kenny is understood to have raised such issues when he met José Manuel Barroso, president of the European Commission, in Brussels last week.
Mr Kenny said afterwards that it had to be made clear that arrangements made for Greece were unique to that country.
In the July deal, private Greek creditors were asked to voluntarily accept a 21 per cent loss on their investment in return for a pledge of further EU-IMF aid for the country.
Under discussion now is a loss of about 50 per cent. Crucial here are recommendations from the troika, which issues a report this week on sustainability of the Greek debt.
In addition, EU leaders must decide by how much and by whom the weakest European banks are recapitalised in an effort to boost confidence in the financial system.
Irish banks are unlikely to require any new investment as their capital levels are now high by European standards.
Other questions to be settled include the expansion of Europe’s bailout fund to enable it to “leverage” its assets and the extent of any change to the EU treaties to strengthen the management of the euro zone.
Mr Kenny has won many plaudits in Europe for his execution of the bailout plan, but difficult talks lie ahead on the budget.
The sale of State assets remains a significant difficulty in talks with the troika.
While the Government wants to use the proceeds from asset sales for job creation, the troika wants it to use the money primarily to reduce debt.
The Government has pledged to sell €2 billion in State assets, less than half the €5 billion sought by the troika. However, the troika is now said to have softened its stance on that issue.