Thursday, 12 July 2012

Questions (62)

Michael McGrath

Question:

61 Deputy Michael McGrath asked the Minister for Finance if he will oppose any requirement that direct recapitalisations of banks be backed up by sovereign guarantees to the European Stability Mechanism in respect of the funds injected; and if he will make a statement on the matter. [34203/12]

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Written answers (Question to Minister for Finance)

As the Deputy will be aware, the Euro Area Summit Statement of 29th June affirmed that it is imperative that the vicious circle between banks and sovereigns be broken. The Statement of 29th June also stated that it has been agreed that when an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area, the European Stability Mechanism (ESM) could have the possibility to recapitalise banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. It was also agreed that the Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme.

In addition, the Eurogroup Statement of 9th July stated that in order to break the vicious circle between banks and sovereigns, technical discussions on the future ESM direct recapitalisation instrument will start in September.

The government has agreed in principle to the separation of banking debt from sovereign debt and in principle to the possibility of ESM funds being used to directly recapitalise the banks. This is an agreement in principle. While detailed work has begun, it would not be appropriate to prejudge the outcome of that work or any discussions to take place between Eurogroup Finance Ministers in the coming months by making further statements beyond the principle that we are in favour of the separation of banking debt from sovereign debt and that we welcome the development.