Irish Prime Minister Enda Kenny said that the country's “special case” on its legacy banking debt will be recognized in negotiations conducted by the country's finance minister for a deal with European partners.

“The clarification and recognition of Ireland's unique circumstances and Ireland's special case will be recognized and dealt with as such in the context of the negotiating mandate given to the Minister of Finance,” Kenny said in parliament in Dublin today. Kenny reiterated that the June 29 summit resulte d in a “seismic shift” in Europe's handling of banking debt.
Ireland is continuing negotiations with the European Central Bank on easing the terms of funds used to bailout the former Anglo Irish Bank Corp., Kenny said.

Eoin Treacy's view I found it striking while in the USA earlier this month that when people listed the countries in Europe they were most worried about no one included Ireland. There appears to be a widespread view that the country has taken the necessary steps to improve its situation and investors are exhibiting confidence that this will remain the case.

Within the last 24 hours both Angela Merkel and Francois Hollande reiterated that Ireland represents a special case when the issue of how to deal with legacy debt is considered. Ireland more than doubled its debt to GDP ratio when it absorbed the debt of its failed banks and this represents a considerable burden on the tax payer. With unemployment at 14% and emigration back to 1980s levels the issue of whether lax domestic regulation or lax international lending practices is more to blame for the crisis is rather academic. The simple truth is that additional fiscal tightening will not promote growth and that if Ireland is to successfully emerge from this crisis, it will need to divest itself of at least part of its debt burden.

There is every chance that this will in fact occur but the timing of such a move is uncertain. Europe's creditor nations will squeeze every possible concession in order to secure further political cohesion before the issue of legacy debt is tackled. I believe it is worth reiterating that EU member states, on aggregate, have the financial resources to fix this crisis given the will to do so. The greatest problem remains that those resources are unevenly distributed and different countries have different and sometimes competing priorities.

The Irish 9-year yield continues to trend lower and at 4.73% is back to a level not seen since before the crisis escalated. When spread over German Bunds, Irish bonds have returned to 310 basis points and continue to trend lower. This represents a vast improvement on the 1250 basis point spread posted in July 2011.