Taoiseach Enda Kenny’s final visit of the year to Brussels wasn’t supposed to turn out like this.

Only days after the end of the EU-IMF rescue programme, European Commission president José Manuel Barroso raised fresh doubt over Ireland’s campaign for more bank debt relief. Clarifications followed, suggesting all is not lost. But the episode took some of the sheen off the carefully managed bailout exit. It is also a result of political disquiet in Brussels at a perceived lack of adequate recognition in Dublin for the solidarity shown to Ireland during the bailout.

So what exactly is going on? Asked at the EU summit about Ireland’s claim for compensation for historic banking debts within the banking union initiative, Barroso said decisions taken were for the future and were not retroactive.

This smacked of change, as the commission has supported Irish demands for help to deal with “legacy” banking debts. It was also at odds with the Government’s insistence that the question remains live, albeit on a longer horizon than Kenny would wish.

Amid discord in Dublin and Opposition claims of “betrayal” in Brussels, the commission sought to clarify the matter yesterday by saying Barroso was not in fact referring to the legacy debt question.

Rather he was dealing with something else entirely, namely a deal this week where finance ministers agreed terms for a new Single Resolution Mechanism (SRM) in which funds built up from a future levy on all banks would be used to settle future banking crises.

This was distinct from powers already given to the European Stability Mechanism (ESM) bailout fund to recapitalise stricken banks directly. This is the focus of the Government’s campaign, following a deal by EU leaders in June 2012 to break the link between bank and sovereign debt. However, Germany and its allies are still resisting deployment of such aid for Ireland. “The president really said nothing new last night. When he was talking about the SRM he was talking about the future,” said Barroso’s official spokeswoman.

The implication was that there was no setback for Ireland because direct bank recapitalisation is the responsibility of the ESM, not the SRM.



‘Separate processes’

Kenny’s argument was more or less the same. “There are two separate processes here,” the Taoiseach told reporters. “The decision made on June 29th last year is unchanged, still stands and continues to hold out the possibility of the direct recapitalisation of banks.The Single Resolution Mechanism, the single resolution fund, is a matter for the future.”

In spite of Germany’s insistence that it did not agree to retrospective aid, the European powers are working to have ESM procedures for direct recapitalisation in place next November. This still constitutes a serious challenge for the Kenny administration. The question remains “in play” from Dublin’s perspective, but nothing is going to happen without a turnaround by Germ- an chancellor Angela Merkel. There is no sign of that, leading to a sense in Brussels that the question is essentially frozen.

Yet there was more to Barroso’s comment than an obscure deliberation on SRM powers. The commission chief, whose mandate expires next year, also took a pointed swipe at the forces that led to “major destabilisation of the euro area” resulting from the Irish banking crash. This “happened under the responsibility of the national authorities of Ireland” and national supervisors, he said.

“It would be wrong to give the impression that Europe has created a problem for Ireland and now Europe has to help Ireland. In fact, it was the banking sector in Ireland that was one of the biggest problems in the world in terms of banking stability, let’s be honest about this.”



Forceful tone

Barroso’s forceful tone was striking, for he was always seen as an ally in Ireland’s painful effort to overcome the banking debacle. The roadblocks are Germany, like-minded countries such as Finland and the Netherlands, and the European Central Bank. Yet here was Barroso – a supposed friend of Ireland – complaining that the single currency was the victim of malpractice in Dublin banks.

This seems like a political point primarily. Even though Kenny, Tánaiste Eamon Gilmore and other Government figures have thanked Europe for its support in the bailout, there is no little concern in Brussels that such gratitude has not been to the fore of the Irish narrative.

Indeed, the Government spurned requests from Barroso and economics commissioner Olli Rehn to visit Dublin last weekend to mark the exit.

Furthermore, Minister for Finance Michael Noonan openly criticised troika technocrats for their lack of political nous in their stewardship of the bailout.

“There is frustration in Brussels that the Irish Government has not properly recognised the fact that Europe was asked to step in to solve an Irish problem, created by the banking sector, and at all times has shown support for Ireland. And that, of course, is why we have also separately put in place many of the tools we have,” said a senior EU source.

The argument goes that European officials spent many late nights on the Irish programme, and that strenuous efforts were made on Dublin’s behalf to extract concessions to cut the interest rate on rescue loans and extend their maturity. For Kenny, the core problem is that ESM aid for Ireland’s banks is as elusive for him as it is unpopular in Berlin.