is a ‘special case’ in bid to recoup bailout funds
Ireland seeking access to ESM to recover some of money it put into AIB and Bank of Ireland
is “an exceptional case” and should be granted retro-active recapitalisation by the European Stability Mechanism, Minister for Finance Michael Noonan said this afternoon in Luxembourg.
Mr Noonan’s comments come despite warnings from German finance minister Wolfgang Schäuble that the fund has “no great leeway” to fund banks that have already been recapitalised.
The ESM, an organisation located in Luxembourg, provides instant access to financial assistance for euro zone member states in financial difficulty.
Ireland is seeking to recoup some of the funds it put into AIB and Bank of Ireland through the ESM. However, a number of member states, including Germany, the Netherlands and Finland, are strongly opposed to the principle of ‘retroactivity’ whereby the fund would be used to retrospectively directly recapitalise banks.
Pointing out that the ECB had forced Ireland into a position where it was not permitted to bail-in senior bondholders, Mr Noonan said the ESM fund was not available to Ireland two years ago. “That’s our case for retrospective application,” he said.
Asked on his way into this afternoon’s meeting of euro zone finance ministers about the fund’s capacity to retroactively directly recapitalise, Mr Schäuble said there was “no great leeway” for the mechanism. “It makes no sense to raise false expectations,” he said. “That only leads to disappointment in markets.”
His comments were echoed by the Dutch state secretary for finance Frans Weekers. “It is possible we discuss retroactive use of direct recap,” he said. “The Netherlands is not in favour of that. There are different thoughts about this.”
As the largest contributor to the ESM fund, Germany has an effective veto over any decision on recapitalisation. EU sources in Luxembourg this afternoon suggested that there was likely to be a broad agreement to examine retroactivity on a case-by-case basis, but any decision would need unanimity. This would push a decision on Ireland’s request for retrospective recapitalisation of AIB and Bank of Ireland into the end of next year, when the banking recovery and resolution directive is up and running.
Speaking on his way into the eurogroup meeting - the last under the Irish presidency of the council of the European Union - Mr Noonan said his German counterpart’s comments did not rule out the possibility of retroactivity. “If there’s leeway, there’s leeway,” he said, adding that Ireland had been forced by the ECB not to bail-in senior bondholders during the Irish bailout.
“We’ve always argued that Ireland was an exceptional case. We’re not arguing this case for all our colleagues in the euro zone. We’re arguing this case for Ireland,” he said.
“We’re saying that we were forced into a position by the ECB where we weren’t allowed bail-in senior bondholders. If the ESM rules that are now emerging were in place two years ago when we recapitalised the banks, the ESM would have assisted in the recapitalisation. And that’s our case for retrospective application. I agree with Wolfgang, the scope is narrow, because there aren’t other countries that were refused to do something as a policy issue which is now being advocated.”
The Minister for Finance said securing further debt relief was not so much a question of Ireland’s debt sustainability, as essential for economic growth. “We’ve brought the debt into the position now that there’s national recognition that the Irish debt position is sustainable, so what I’d like if we could avail of retrospective recapitalisation in one way or another, would be to relieve the burden on Ireland which is inhibiting our growth rates.”