Dáil Éireann Debate, Thursday - 3 October 2013
20. Deputy Caoimhghín Ó Caoláin asked the Minister for Finance if all 17 euro zone member states have indicated a willingness to use the ESM to retrospectively recapitalise Ireland’s banking system. [41499/13]
View answerThe Deputy will be aware that 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. The Eurogroup meeting of 20th June 2013 agreed on the main features of the ESM’s Direct Bank Recapitalisation instrument (DBR). The instrument will come into effect when the Single Supervisory Mechanism is in place. The Eurogroup has agreed that there will be strict eligibility criteria as well as a clear pecking order for the ESM DBR instrument. There is a specific provision for retrospective recapitalisation included in the instrument. This states that “The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.” Therefore, the agreement, that we were active in negotiating, keeps open the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks for us, should we decide to seek it.
This overall framework agreed this summer builds upon the earlier Euro area Heads of State and Government agreement secured on the 29th of June 2012, and is an important step in the Eurozone’s efforts in this regard. The objective of the ESM Direct Bank Recapitalisation instrument is to help preserve the stability of the euro area and help remove the risk of contagion from the financial sector to the sovereign, thus weakening the vicious circle between banks and sovereigns as called for by the Euro Summit last year.
Finally, it is a matter for the ESM Board of Governors (i.e. Euro area Finance Ministers) to decide on any application made for any of its facilities, including the DBR facility and its retrospective recapitalisation element. However, it will not be possible to make any application without the instrument being in place, and this is currently expected to be in the second half of 2014.
