GERMANY HAS insisted that a reduction in the cost of Ireland’s bailout has neither been agreed nor is it connected to separate talks on further external aid for Greece.
The hard line from Berlin came amid renewed market turmoil as investors weighed the prospect of Greek debt restructuring, something EU leaders had been very keen to avoid.
Although European officials believe a deal to cut the interest rate on Ireland’s rescue loans is now within the Government’s grasp, German finance ministry spokesman Martin Kotthaus said “there is no new situation” when asked if Berlin was coming around to the idea.
“One can talk about many things but if one wants a chance then something has to change on both sides,” Mr Kotthaus said, a nod to Berlin’s insistence that Ireland raise its corporate tax rate in exchange for lower interest rates.
In a special Dáil debate yesterday to mark Europe Day, Taoiseach Enda Kenny called for a more flexible bailout package as Ireland tries to overcome its debt troubles.
“There is no doubt that a reduction in the interest rate on the monies we are borrowing from Europe would be a meaningful and appreciated measure,” Mr Kenny said.
“We carry a heavy burden of debt. Without strong growth, questions of sustainability will remain.” Mr Kenny, who also called for the European Central Bank to be more accountable, later rejected a weekend report that a deal to cut the interest rate was already agreed.
Although the Irish interest rate will feature when EU finance ministers gather next Monday and Tuesday for their monthly meetings, Mr Kenny could not say whether the debate would be finalised at that point.
“But, obviously, we have been pursuing this diligently and it may well be that a conclusion may be reached there,” he said.
The ministers’ talks in Brussels are set to be dominated by waning confidence in the Greek rescue, which drove European stock markets lower yesterday and weighed heavily on Spanish and Italian shares.
The situation will also be discussed when German chancellor Angela Merkel holds separate meetings tomorrow in Berlin with European Commission chief José Manuel Barroso and European Council president Herman Van Rompuy.
Greece’s precarious position worsened yesterday as Standard Poor’s credit rating agency downgraded its debt yet again, making it even more difficult for the country to contemplate a return to private debt markets next year as foreseen in its bailout.
The downgrade came in the wake of secretive unscheduled talks last Friday night in Luxembourg at which a select group of finance ministers discussed the possibility of a second bailout deal as an alternative to restructuring, which is a form of default.
Those present included German minister Wolfgang Schauble, French minister Christine Lagarde and euro group chief Jean-Claude Juncker.
The meeting ruled out restructuring but the markets are not convinced, prompting European diplomats to concede that the authorities are now under serious pressure to provide clarity about Greece’s position.
“You have to either definitively rule it out, or you have to move forward quickly,” said a diplomat in reference to restructuring.
The problem facing authorities is that a second bailout may be the only alternative to restructuring, something which would create political difficulties for Dr Merkel and other embattled leaders.
Senior sources denied that Greece’s departure from the euro zone was discussed, or that German officials gave information to the “Spiegel Online” website that a Greek exit was on the agenda.