Germany backs "special" Ireland on bank deal

DUBLIN (Reuters) - German Chancellor Angela Merkel and Irish Prime Minister Enda Kenny issued a joint statement on Sunday reaffirming that euro zone leaders would examine ways of improving Ireland’s bank rescue, recognizing that it is a “special case”.

Germany's Chancellor Angela Merkel addresses a news conference at the end of the second session of a two-day European Union leaders summit in Brussels October 19, 2012. REUTERS/Christian Hartmann

Kenny has come under intense pressure at home since Merkel said on Friday that euro zone banks could not be retrospectively recapitalized via the bloc’s bailout fund, appearing to dash Irish hopes of getting a wide deal on its banking debt.

Ireland, which has been in talks for almost 18 months to ease the burden placed on it by its failed banks, added a second wave to its negotiations in June when EU leaders cleared the way for rescue funds to be pumped into viable banks, something Dublin said could be back-dated for its already recapitalized lenders.

In a joint communiqué released by the Irish government after Kenny and Merkel discussed the “unique” circumstances behind Ireland’s financial crisis, the pair reiterated the pledge made in June that singled out Ireland for assistance.

“Enda Kenny and Chancellor Angela Merkel spoke together this afternoon. They discussed the unique circumstances behind Ireland’s banking and sovereign debt crisis, and Ireland’s plans for a full return to the markets,” the statement said.

“In this regard they reaffirmed the commitment from June 29 to task the Eurogroup to examine the situation of the Irish financial sector with a view to further improving the sustainability of the well performing adjustment program.”

“They recognize in this context, that Ireland is a special case, and that the Eurogroup will take that into account.”

The statement made no mention of how European banks should be recapitalized but the reference to Ireland as unique will be a boost for Kenny who met heavy criticism in local newspapers on Sunday following Merkel’s comments after Friday’s EU summit.

The commitment made in June to look at easing the terms of Ireland’s bank bailout has helped push Irish bond yields down significantly, allowing Dublin to borrow on long-term debt markets for the first time since signing an EU/IMF bailout in November 2010.

Kenny will travel to Paris on Monday for his first bilateral meeting with French President Francois Hollande since he came to power last May.

Reporting by Padraic Halpin; editing by Jason Webb