Dáil Éireann Debate, Thursday - 17 January 2013
6. Deputy Pearse Doherty asked the Minister for Finance if he will provide an update on the on-going negotiations on the issue of the legacy debt in the pillar banks detailing the number of meetings that took place on this issue between him, his officials and representatives of the ECB, the ESM and other EU bodies; the nature and content of these discussions; and the meetings that are scheduled to take place in the coming months. [1772/13]
Amharc ar fhreagraAs is widely known, the Heads of State or Government stated at the 29 June meeting "that it is imperative to break the vicious circle between banks and sovereigns" and that "the Eurogroup will examine the situation of the Irish financial sector with a view to further improving the sustainability of the well-performing adjustment programme."
The European Council on 18-19 October subsequently reaffirmed that the "the Eurogroup will draw up the exact operational criteria that will guide direct bank recapitalisations by the European Stability Mechanism (ESM), in full respect of the 29 June 2012 euro area Summit statement. It is imperative to break the vicious circle between banks and sovereigns.”
The key timeline in regard to the realisation of these commitments is the establishment of the Single Supervisory Mechanism. The European Council stated on 14 December 2012 that "once an effective SSM is established, the ESM will be able to recapitalise banks directly. An agreement on the operational framework supporting this possibility, including the definition of legacy assets, should be agreed as soon as possible in the first semester of 2013".
Aside from the issue of when this new instrument will become available, there is a host of other issues that have yet to be worked through such as how these banks would operate under ESM ownership, what governance arrangements would be put in place between the fund and the banks themselves and between the ESM and member state governments. We need to consider these wider considerations in the months ahead.
Ireland continues to be fully engaged in this process within the Eurogroup and among Heads of State or Government. Furthermore, officials from my Department also participate in technical meetings with the ESM and other member states. In this regard and despite recent media reports, discussions remain ongoing and no conclusion has been reached.
As the Deputy is aware, Ireland is a special case due to the unique circumstances behind our banking and sovereign debt crisis and the fact that our banking crisis emerged at a time when the full range of European mechanisms were not available to us. The Government has been working extremely hard to secure a deal on the Irish bank debt and detailed work will continue to ensure that the positive moves in Europe are harnessed to maximise the benefit to the Irish taxpayer.
There is no doubt that the statement on 29 June offered an opportunity for Ireland to secure the getting back of the money we invested in the pillar banks, which is to the tune of more than €25 billion. Unfortunately, I note from media reports, an editorial in the Financial Times the day before yesterday and an article in The Wall Street Journal yesterday, that it is claimed there is a potential row back from that position in Europe at this point in time. The writer of the editorial claimed to have seen a Commission document which indicated that recapitalisation of banks across Europe in the future would be jointly capitalised by the ESM and member states up to a certain threshold, or the other option is that losses of the ESM would be guaranteed by the member states, which would not be beneficial or would definitely be a worst case position than the statement on 29 June.
The Wall Street Journal took it further yesterday and claimed that the leaders have nearly unanimously agreed in the first part of this year that in terms of the recapitalisation of any banks in the future the first tranche of it, up to 4.5% of core tier one capital ratio, would be done by the member states and afterwards it would be jointly done by the ESM to a certain proportion.
Has the Minister seen the Commission's document? Is he concerned that there is a potential row back on the commitment given on 29 June, or about the difficulties that would place on him and the Taoiseach to try to secure this deal and the impact that could have on our re-entering the markets? I agree with him that the markets have priced in the deal. The 29 June statement was significant for the markets and we have seen our bond yields decrease as a result of that.
I read the article on the front page of the Financial Times, to which the Deputy referred, I have not seen the article in The Wall Street Journal. We have had no indication that there is such a Commission paper. When I spoke to Commissioner Rehn last week in Dublin Castle and discussed these matters with him informally he did not indicate to me that there was such a paper. My officials who have served on various subgroups in Europe have not come across any reference to it either. I do not know what the Financial Times source is or what has led to the speculation. One must be always vigilant in these matters but I have no information which can confirm that. I have had conversations very recently with Commissioner Rehn and there was no indication that there was a change of policy.
As the Deputy is probably aware, the last ECOFIN meeting before Christmas concluded in passing the framework for the single supervisory mechanism and the next step is that it will go to the European Parliament and then it can be adopted as the legal document for the supervision. Once that is in place, that is the prime condition for any movement by the ESM to invest in banks directly. The Deputy may also have noticed that the ESM has raised money on the markets. It is such a strong organisation that anyone who wanted to invest in the ESM had to pay a commission. In other words, the interest rate was a minus interest rate. Not only were investors getting money at zero rates but they had to pay a small premium to ensure that their investment was secure in the ESM. That will show how strong a credit rating it has. There is a whole lot of detail to be worked out on how it would be managed if the ESM were to invest directly in recapitalising banks and I referred to that in my answer. A subcommittee of a committee is working on this at present and going through all that detail. I have not been briefed in the past 48 hours on that. I will be in Brussels on Monday and Tuesday, the Eurogroup will meet on Monday and ECOFIN will meet on Tuesday, so I may get a further update there but there is nothing particular on the agenda that directly refers to this.
I was very conscious of the importance of these questions but I remind Members that we are dealing with ordinary questions and six minutes are allocated per question, two minutes for the Minister and then four minutes with a limit of one minute per supplementary. I ask Members to keep that in mind.
