Legislation was required for Ireland to ratify the ESM (European Stability Mechanism) Treaty, and the ESM Act (No 20 of 2012) passed all stages of the Oireachtas, and was then signed into law by the President on 3rd July 2012. Ireland deposited its instrument of ratification of the ESM Treaty on 1st August 2012. The ESM Treaty, at Article 48.1 provides that the ESM will enter into force when instruments of ratification, approval or acceptance have been deposited by signatories whose initial subscriptions represent no less than 90% of the total subscription. The ESM Treaty accordingly entered into force on 27th September 2012 following its ratification by 16 of the 17 Euro area member states, representing over 99.8% of its subscribed capital base. All 17 Euro Area Member States have now ratified the ESM Treaty.
As you 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.
The European Commission stated on July 2nd 2012 that the ESM Treaty does not need to be changed in order to allow the direct recapitalization of banks. They pointed out that Articles 14 - 18 of the Treaty set out the instruments that may be used to guarantee the Eurozone's financial stability, and that Article 19 provides that the Board of Governors may review that list of instruments and decide to make changes to it.
The ESM Treaty, therefore, provides for a review by the Board of Governors of the financial instruments available to it, and to make changes to that list. The decision on any such change would be made by the Board of Governors acting by mutual agreement, in accordance with Article 5 of the ESM Treaty.
Work is continuing at a technical level to put in place both the single supervisory mechanism, and the European Stability Mechanism's direct banking recapitalisation facility, at the earliest possible date. Ireland is participating constructively in these technical discussions. Any proposal to change the list of financial instruments provided in the ESM Treaty must be consistent with that Treaty.
The most recent European Council on 18/19 October 2012 concluded that:
"The Eurogroup will draw up the exact operational criteria that will guide direct bank recapitalisations by the European Stability Mechanism (ESM), in full respect of the 29 June 2012 euro area Summit statement. It is imperative to break the vicious circle between banks and sovereigns. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly."
It is important from Ireland's perspective, that progress towards these goals is made as quickly as possible.
