The Euro-area Heads of State or Government agreed in June 2012 that "it is imperative to break the vicious circle between banks and sovereigns", and that when a Single Supervisory Mechanism (SSM), involving the ECB, is in place and operational, the European Stability Mechanism could recapitalize banks directly.
The Eurogroup meeting on 20 June 2013 agreed on the main features of the European Stability Mechanism's Direct Recapitalisation Instrument (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 Eurogroup meeting on 5 May 2014 considered a proposed resolution to the outstanding issues on the operational framework of the ESM's DRI put forward by the Eurogroup President, Mr Dijsselbloem. This proposal was broadly supported. This proposal is expected to be put to the Eurogroup on 19 June 2014 for a decision. After this national approval procedures must be completed. It will not be possible to apply for the DRI until it is in effect. The DRI will come into effect once the SSM is in place and operational. This is expected to be in the fourth quarter of this year. Finally, both I and my Government colleagues will ensure that Ireland's case for retrospective direct recapitalisation is made at all levels as appropriate. I remain confident that the commitment made by the Euro-area Heads of State or Government in June 2012 to break the vicious circle between banks and sovereigns will be respected.