Dáil Éireann Debate, Tuesday - 18 February 2014
180. Deputy Brendan Griffin asked the Minister for Finance his plans regarding Irish legacy bank debt; if he will make Irish agreement on European banking union conditional on a deal on legacy debt; and if he will make a statement on the matter. [7761/14]
View answerThe Euro-area Heads of State or Government (HoSG) agreed in June 2012 that "it is imperative to break the vicious circle between banks and sovereigns", and that when a Single Supervisory Mechanism, which forms part of an overall Banking Union proposal involving the ECB, is in place and operational, the European Stability Mechanism could recapitalise banks directly.
The Eurogroup meeting of 20th June 2013 agreed on the main features of the European Stability Mechanism's Direct Recapitalisation Instrument or DRI. There is a specific provision included in those main features, which 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 European Stability Mechanism for a retrospective direct recapitalisation of the Irish banks, should we wish to avail of it. The DRI will come into effect when the Single Supervisory Mechanism is in place and operational. This is not expected to take place until late 2014.
The overall Banking Union proposal involves an integrated system for the supervision of cross-border banks in the form of the single supervisory mechanism ('SSM'); a European deposit insurance scheme ('DGS'); a European resolution scheme commonly referred to as the Bank Recovery & Resolution Directive (BRRD) and; a Single Resolution Mechanism (SRM) to coordinate the application of resolution tools to banks under the Banking Union.
As you are aware, one of the core objectives of Banking Union is to break the link between the sovereign and the banking sector by strengthening the banking system and making it more resilient. A key feature is the need to provide authorities with a credible set of tools to intervene sufficiently early and quickly in an unsound or failing bank so as to ensure the continuity of a bank's critical financial and economic functions whilst minimising the impact of a bank's failure on the economy and financial system, by requiring that shareholders bear losses first followed by creditors while at the same time minimising the costs for taxpayers.
Agreement on Banking Union is essential for Europe and we support the need to conclude the remaining elements namely the Single Resolution Mechanism as soon as possible. Finally, I can assure you that the Irish case for retrospective recapitalisation is made at all levels as appropriate.
I remain confident that the commitment made by the EU HoSG in June 2012 to break the vicious circle between banks and sovereigns will be respected.
