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Dramatic Irish debt Summit breakthrough

Friday, June 29 08:06:52

In a dramatic breakthrough in the early hours of this morning, Taoiseach Enda Kenny has unveiled what he said was a deal struck with European leaders that will cut Ireland's huge debt burden.

Details are sketchy, but according to a statement issued at 4am, euro zone leaders pledged to "examine the situation of the Irish financial sector with the view of further improving the sustainability of the well performing adjustment programme."

This amounts to an agreement - in principal - to allow the EU's permanent bailout mechanism - the ESM to be used to directly recapitalise euro zone banks.

This had been a key demand of the Spanish and other governments in the run up to this week's crisis summit. It was vigourously supported by the Irish Government as a way to potentially restructure Ireland's bank debt retroactively.

According to Irish officials, this represents a "seismic shift" in EU policy, and follows months of trenchant German opposition to the use of the European Stability Mechanism (ESM) to directly recapitalise banks.

The agreement states that once an EU-wide bank supervision system is set up the ESM will be able to directly recapitalise banks.

The Taoiseach has said that once that happens Ireland's overall debt burden, including the bank debt burden, can be re-engineered in a way which will give Ireland equal treatment to Spain and any other countries which avail of the new system.