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

As the Deputy is aware, 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 European Central Bank, ECB, is in place and operational, the ESM, could recapitalise banks directly. On 10 June 2014, the euro area member states reached a preliminary agreement on the operational framework for the ESM's direct recapitalisation instrument, DRI. This includes a specific provision regarding the retroactive application of the instrument. Therefore, the agreement, that we were active in negotiating, keeps open the possibility of applying to the ESM for a retrospective direct recapitalisation of the Irish banks, should we wish to avail of it.

We now require 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, subject to completion of national approval procedures. 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.

Regarding 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, it will not be possible to make a formal application to the ESM for retrospective recapitalisation before the instrument is in place. It would, therefore, be premature to make any submission, be it a technical paper or otherwise, in advance of the instrument being in place. My Government colleagues and I ensure that Ireland's case for retrospective direct recapitalisation is made at all levels as appropriate.

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