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European Stability Mechanism

Dáil Éireann Debate, Tuesday - 13 November 2012

Tuesday, 13 November 2012

Questions (201, 234)

Pearse Doherty

Question:

201. Deputy Pearse Doherty asked the Minister for Finance in respect of the €509,504,000 paid by the State to the European Stability Mechanism in October 2012, the treatment of this and other future payments to the ESM in calculating the deficit target as set out in the memorandum of understanding with the IMF-EU-ECB. [49484/12]

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Finian McGrath

Question:

234. Deputy Finian McGrath asked the Minister for Finance the position regarding the moneys paid to the ESM following ratification of the ESM Treaty; and if he will make a statement on the matter. [49704/12]

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Written answers

I propose to take Questions Nos. 201 and 234 together.

The capital structure of the European Stability Mechanism (ESM) is set out in the ESM Treaty which was signed by Euro Area Member States on 2 February 2012, and entered into force on 27 September 2012.

To obtain the highest possible credit rating, the capital structure of the ESM will have a total subscribed capital of €700 billion. Of this amount, €80 billion will be in the form of paid-in capital by the Euro Area Member States. The balance of €620 billion will be callable capital. The contribution key for each Member State is set out in Annex 1 to the Treaty and is based on the ECB capital contribution key. For Ireland the key is 1.5922% of the total paid and committed capital.

Ireland’s share of the €80 billion in paid-in capital to the ESM will therefore be just above €1.27 billion, and will be paid in five equal instalments of €254.752 million. The first two instalments, totalling €509.504 million, were paid together on 13th October this year. It is expected that two more will be paid in 2013, with the final one paid in 2014.

The ESM has been established as an International Financial Institution and on that basis Ireland’s contribution will be treated as a financial transaction and considered as an equity investment for Ireland. This means that while payments towards its paid-in capital will impact on Ireland’s Exchequer Borrowing Requirement, they will not impact on its General Government Deficit.

As our fiscal targets under the EU-IMF programme are defined in terms of the General Government Deficit, the capital contribution to the ESM does not impact on these fiscal targets.

If and when the ESM engages in programme funding, it will borrow money on the international financial markets and lend it on to the beneficiary ESM member state. This is how the EFSF operates at present. The capital of the ESM will not be paid out directly to programme countries. The callable capital will only fall to be called upon in the event that Member States borrowing from the ESM default or that the ESM incurs losses in ESM operations.

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