As you are aware the Euro-Area Heads of State or Government agreed on 29th June 2012 to break the vicious circle between banks and sovereigns, and that when a Single Supervisory Mechanism is in place involving the ECB, the European Stability Mechanism (ESM) could recapitalize banks directly. The Euro-Area Heads of State or Government confirmed this position and mandated EU Finance Ministers to prepare an operational framework by mid-2013. A considerable amount of work has been undertaken at technical, senior official and Ministerial level on the ESM’s Direct Bank Recapitalisation Instrument. This work culminated in agreement on the main features of the operational framework for the ESM’s Direct Bank Recapitalisation (DBR) Instrument at the June 20th Eurogroup meeting of Euro-Area Finance Ministers in Luxembourg.
We have succeeded in having specific provision for retrospective recapitalisation included in the framework, which states that “The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.” There is still a lot of negotiation to be done on this aspect of the facility but the agreement now in place keeps the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks open for us, should we wish to avail of it.
This overall framework builds upon the agreement secured on the 29th of June 2012, and is an important step in the Eurozone’s efforts in this regard. It is expected that the earliest date that the ESM Direct Bank Recapitalisation Instrument can come into effect will be towards the end of the first half of 2014, given the need to satisfy national procedures, and also the requirement to have the Single Supervisory Mechanism in place and operational beforehand.