Kenny presses Merkel for "clarity" on Irish bank relief

BERLIN Thu Nov 1, 2012 12:15pm EDT

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BERLIN Nov 1 (Reuters) - German Chancellor Angela Merkel offered Ireland's leader no clear signal on Thursday on easing the country's banking debt burden beyond reiterating that she sees it as a "special case".

Irish Prime Minister Enda Kenny had played down hopes of a breakthrough during his visit to Berlin on the 1-1/2-year-old campaign to relieve the burden placed on Ireland by its failed banks. He said in a video on a government website that his meeting with Merkel was "not about making a decision".

The conservative German chancellor praised Dublin's reforms under its 2010 European Union/International Monetary Fund bailout and said the "very specific situation" regarding its bank debt was being discussed by euro zone finance ministers.

"We must wait and see the outcome of their work," said Merkel, who caused dismay in Ireland and Spain after an EU summit on Oct. 19 by saying euro zone bailout funds could not be used to recapitalise banks retrospectively.

Both countries had hoped for partial relief on the cost of bank rescues to alleviate the pressure on their national debt.

Two days after that summit, Merkel and Kenny held a Sunday phone call and then issued a joint statement which reiterated the "unique" circumstances of Ireland's financial crisis and their interest in the euro zone coming up with a solution.

Ireland's leaders and people have been widely praised by European policymakers for acting decisively to cut national spending when the country's crisis began.

But Merkel's doggedly "step by step" approach to the euro zone crisis often exasperates her peers and in his joint news conference with her on Thursday, Kenny expressed urgency in getting Ireland "back to the debt markets in a timely manner".

"I explained to the chancellor the need for progress in this process and I believe that the chancellor agrees with me that the more clarity that we provide about how Ireland can ensure a successful re-entry, the more helpful that will be," he said.

In Ireland's case the bank rescue cost the equivalent of 40 percent of annual economic output. Merkel and Kenny both said resolving this cost was key to ensuring the sustainability of Ireland's reforms under its EU/IMF programme.

Ireland's finance minister said on Thursday that he expected the economy to expand by more next year than the 1.4 percent growth posted in 2011, but his forecast revises down a previous estimate for a 2.2 percent expansion.

EU leaders made a commitment in June to look at easing the terms of Ireland's bank bailout. One possibility is back-dating euro zone bailout relief for Ireland's bank recapitalisation.

Ireland is also pursuing the option of restructuring 31 billion euros of promissory notes - a form of high-interest IOU - given mainly to the former Anglo Irish Bank, now called the Irish Bank Resolution Corporation.

France's Socialist President Francois Hollande supports back-dating the Irish bank rescue but the Germans - including Finance Minister Wolfgang Schaeuble on a visit to Dublin this week - have in public at least just given general encouragement.

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