Irish Get Seismic Shift on Banking Deadlock

Ireland's bid to avoid a second bailout may be buttressed by what Prime Minister Enda Kenny called a seismic shift in European policy.

After 13 1/2 hours of talks ending at 4:30 a.m. in Brussels today, leaders of the 17 euro countries opened the door to recapitalizing banks directly with the European Stability Mechanism, instead of through the government, once Europe sets up a single banking supervisor.

“The fundamental principle of the ESM providing the funding to break the link between the sovereign and the bank has now been established,” Kenny said after the summit.

Kenny said the burden on Irish taxpayers may be eased by the accord as what seemed “unachievable has now become a reality.” Ireland's ambition to regain economic sovereignty and borrow in the bond market after an almost two-year absence had been cast into doubt by the European debt crisis. Before the meeting of leaders, investors fretted that Italy might have to follow Spain in seeking aid.

Kenny has been pressing European leaders to share the burden of rescuing Anglo Irish Bank Corp. and is pushing the European Central Bank to commit to funding the financial system.

Irish October 2020 bonds, regarded as the benchmark, rose today, with the yield falling 41 basis points to 6.70 percent, about a percentage point shy of the level that pushed the state into an international rescue in 2010.

Bloomberg