After two years of spin and obfuscation, Berlin's ESM cabinet vote yesterday was another lap in Ireland's winding road to bank debt nirvana.

From now, expectations around Europe that the ESM should recapitalise struggling banks – in Ireland’s case retroactively – are now in the German political system.

Irish hopes of clawing back, via the ESM bailout fund, taxpayers’ money invested in failing Irish banks were given a boost when EU leaders, at their June 2012 summit, agreed to break the link between banking and sovereign debt. That agreement, to prevent the cost of saving banks burdening national balance sheets, was greeted around Europe as a game-changer” in the bloc’s approach to managing the cost of the euro crisis.

Not in Berlin. After the summit euphoria evaporated, the road to debt relief was soon littered with political hurdles and technical obstacles to realising the agreement.

Existing ESM rules only allowed for indirect recapitalisation of banks via member states, as happened in Spain. Any changes to allow direct recapitalisation were out of the question, Berlin argued, until safeguards – an EU banking regulator and new rules to wind-up banks – were in place to limit potential liability.

Now German preconditions are falling into place, allowing euro finance ministers last month to hammer out, in black and white, preliminary details of the ESM’s “direct recapitalisation instrument” (DRI).

The list of provisos and conditions on its operation are as long as its proposed competencies. From new bail-in obligations to national resolution funds, Berlin hopes these will obviate the need for banks to ever tap the ESM.

That is an appalling vista in Germany, where many view the mechanism as a trojan horse to debt mutualisation. The DRI must be only an absolute last line of defence, German officials argue, capped at €60 billion with pay-outs dependent on unanimity among ESM members.

“Retroactive” applications – essential for Ireland – will be worked out on a “case-by-case basis, by mutual agreement” of ESM board members.

The last two years have seen German leaders move from dismissing recapitalisations, to long-fingering the idea to, yesterday, accepting the principle at cabinet. Now they have to convince their Bundestag backbenchers to back the package. Their hope: that attention in Berlin centres on the long list of safeguards the German government has insisted were built into the ESM's new recapitalisation tool – and not on the chink of light visible for Ireland from the retroactive debt backdoor.