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Bank Debt Restructuring

Dáil Éireann Debate, Thursday - 26 June 2014

Thursday, 26 June 2014

Questions (76)

Michael McGrath

Question:

76. Deputy Michael McGrath asked the Minister for Finance if he has formally put forward specific policy suggestions as to how retrospective bank debt relief could be achieved; and if he will make a statement on the matter. [27788/14]

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Written answers

The 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, 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 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.

On 10 June 2014, the euro area Member States reached a preliminary agreement on the European Stability Mechanism's (ESM) direct recapitalisation instrument (DRI). This now requires a decision by mutual agreement of the ESM Board of Governors to create a new ESM instrument in accordance with Article 19 of the ESM treaty and the aim is to have this process completed by November this year.  This would allow the ESM DRI to come into effect once the Single Supervisory Mechanism is in place and operational which is expected to be in November of this year.

In relation to retrospective recapitalisation, the preliminary agreement states that the potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement. However, as I indicated last week when I was before the Joint Oireachtas Committee on Finance and Public Expenditure and Reform, it is not possible to make a formal application to the ESM for retrospective recapitalisation in advance of the Instrument being in place. Therefore, at this juncture, it is premature to make specific policy suggestions on the implementation of retrospective recapitalisation in advance of the instrument being in place.

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. Finally, as I have indicated in the past, both I and my Government colleagues ensure that Ireland's case for retrospective direct recapitalisation is made at all levels as appropriate.

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