Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

The Eurogroup agreed in June 2012 to break the vicious circle between banks and sovereigns, and that when a single supervisory mechanism involving the ECB was in place and operational the European Stability Mechanism could recapitalise banks directly. The Eurogroup meeting of 20 June 2013 agreed on the main features of the ESM's direct bank recapitalisation, DBR, instrument. There is a specific provision included in those main features which states: “The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.” Therefore, the agreement, which we were active in negotiating, keeps open the possibility of our applying to the ESM for a retrospective direct recapitalisation of the Irish banks, should we wish to avail of it.

The DBR instrument will come into effect when the single supervisory mechanism is in place and operational. This is not expected to take place until the second half of 2014. The Eurogroup has agreed that there will be strict eligibility criteria as well as a clear pecking order for the ESM-DBR instrument, so any possible application for DBR will be determined on its own merits within the rules laid down by the ESM’s DBR instrument. The overall framework agreed this summer builds upon the earlier euro area Heads of State or Government agreement secured on 29 June 2012 and is an important step in the eurozone’s efforts in this regard.

I remain confident that the commitment made by ECOFIN in June last year to break the vicious circle between banks and sovereigns will be respected. The DBR issue was not on the agendas of the most recent ECOFIN and Eurogroup meetings.

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