Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I welcome the opportunity to speak on Second Stage of the European Stability Mechanism (Amendment) Bill. Fianna Fail will support the Bill because it is a logical extension of supporting the original ESM Bill in 2012 but for the more important reason, as indicated in the Minister's opening contribution, that it keeps open the possibility of a deal on retroactive recapitalisation for this country.

This subject is deeply depressing. I refer to last week's meeting of the Joint Committee on Finance and the Public Service which was a pre-legislative hearing attended by departmental officials. The prospect of Ireland accessing the ESM by means of a retroactive deal seems to be coming more remote with each passing day. Aside from that issue, for any country in the eurozone which is seeking to access the ESM and the banks of which get into difficulty, there are so many ladders to climb and hoops to jump through that it will become virtually impossible for any country to avail of the direct recapitalisation provisions, not to mention retroactive recapitalisation.

This must be seen in the context of the Heads of Government summit agreement in June 2012 which was heralded as a game-changer, a seismic shift, by which the sovereign state and bank debt would be separated. What we have had since is far removed from this. Even under the direct recapitalisation instrument which has been enshrined in the treaty, countries seeking to access the ESM for direct recapitalisation will only be able to do so if they themselves are unable to provide the money for the banks.

We are not separating bank debt from the sovereign at all. It seems that the spirit of the June 2012 agreement has been abandoned. The only reason I am supporting the legislation is that it keeps the door open to the remote possibility of a deal on retroactive bank recapitalisation for Ireland.

I am disappointed the Minister, Deputy Noonan, was obliged to leave the Chamber because I wanted to put it to him that he should have taken the opportunity to confirm that Ireland will lodge an application to the ESM in respect of a deal on bank debt and retroactive bank recapitalisation as soon as the window opens, which, as he confirmed, will be on 4 November. That is just over a month away but the Minister did not see fit to come before the House and use the opportunity presented by the very Bill which makes it possible to do so to confirm that Ireland will be seeking to invoke the instrument pertaining to retroactive recapitalisation. The Minister should have done that. He made a commitment in this regard - under pressure - at a meeting of the Joint Committee on Finance, Public Expenditure and Reform. However, I am of the view that he did not do so with any great conviction. In light of his comments and those of the Tánaiste and Minister for Social Protection in respect of there being various ways to skin a cat, it appears that all of the mood music from the Government is indicating that the commitment to securing a deal on bank debt is being diluted. It is with regret that I must state that this is the tone I am picking up from the Government.

Under no circumstances should the welcome deal on the early repayment of IMF loans be seen in some way as a substitute for a deal on bank debt. We were promised a deal on bank debt in the aftermath on the agreement reached in June 2012, which, in turn, promised to separate such debt from the sovereign. A number of important questions in respect of this matter - and Ireland's strategy in terms of its investments in the banking sector - must be answered. The Minister indicated that he is examining the possibility of selling a stake in AIB to outside investors. Again, this is a further indication that there is no real commitment to securing a deal on retroactive recapitalisation. If there were such a commitment, the Minister would have awaited the outcome of an Irish application for a deal on bank debt before floating the idea that we might be prepared to sell a stake in AIB. I am of the view that it is far too early to contemplate selling a stake in the bank. AIB is in recovery but I accept that it still has some distance to travel. The long-term value of retaining ownership of the bank for the next number of years would be far greater than any short-term gain to be had by selling a stake in it. We know what happened in the case of Bank of Ireland. The sale of a stake in that institution to private investors was heralded as a great sign of confidence in the Irish economy and the banking sector. We were assured that the investors in question would retain their investment in Bank of Ireland because they were committed to the banking system here and to our economy. At the first opportunity, however, the investment was sold on at a very handsome profit for those concerned. We should not make the same mistake in the context of AIB.

The Minister should commit the Government to applying for a deal on retroactive bank recapitalisation next month. We have not heard anything about such a commitment so far. We need to hear it and to put it up to our European partners with regard to whether they are going to honour the agreement signed two and a quarter years ago. I am of the view that a deal must be obtained in order that the position in respect of Ireland's overall debt sustainability might be improved. Despite the improvements in the overall economic picture and the very clear signs of recovery, the fact is that Ireland remains highly indebted and has a debt-to-GDP ratio in the region of 120%. That is why advancing the issue of retroactive recapitalisation is absolutely fundamental in the context of the country's future debt position. Article 14 of the guidelines makes it clear that direct recapitalisation is a matter for the ESM's board of governors to decide. This means that any decision in this regard will be entirely political in nature because the board of governors, as such, comprises the eurozone Finance Ministers. This is an issue on which the Minister, Deputy Noonan, and his colleagues must follow up on a daily basis with those Finance Ministers in advance of submitting, as promised a number of months ago, an application for a deal on retroactive bank recapitalisation on Ireland's behalf.

In the context of the guidelines relating to direct recapitalisation and as already stated, it is depressing that countries will, in the first instance, be obliged to use their own money to the point of risking their own financial stability before the ESM will be opened to them in order that they might recapitalise their banks. The reality is that even if everything that is envisaged came into effect today and even if the forthcoming stress tests show that Irish banks need more money, the fact that we are able to borrow on the international markets at cheap rates of interest means that Ireland would not be able to access the fund. What good will it be if Ireland cannot obtain a deal in respect of retroactive recapitalisation?

The fund for direct recapitalisation is set at €60 billion, an amount which is far too small. As we are aware, the Irish State alone put €64 billion into its banking system. There is not any genuine commitment on the part of Europe to deliver on what was announced in June 2012. Earlier this year, Klaus Regling, head of the ESM, stated that "In exceptional cases, and by unanimous votes, there may be retroactive recapitalisation, but it doesn't seem very likely". I took issue with Mr. Regling and wrote to him seeking an explanation. When he replied in March, he refused to repeat or substantiate his claim to the effect that it is very unlikely that retroactive recapitalisation will happen and merely set out the formal context as to how the scheme relating to such recapitalisation could be invoked. In view of recent comments by the German Finance Minister and Chancellor, the Finance Ministers of other AAA-rated countries in the eurozone and Jeroen Dijsselbloem, there seems to be absolutely no commitment on the part of and very little support among Ireland's European partners in the context of having this matter addressed.

The Government has made matters all the more difficult in the context of the case we need to put to secure a deal on bank debt by talking up our economic recovery throughout Europe and highlighting how great we are doing. One could not blame any of our European partners for thinking that Ireland is out of the woods and does not need a deal on bank debt. Nothing could be further from the truth. This country is still exposed to very significant risks, many of which are external and beyond our control. We are extremely indebted at national level and our corporates and households are also very indebted. With a debt-to-GDP ratio still in the region of 120%, I am of the opinion that pursuing a deal on bank debt is critical.

When the idea of the ESM taking shareholdings in Irish banks was first floated a couple of years ago, I inquired as to how this would work in practice. Two years on, we are still no closer to obtaining an answer to the question I posed. I was informed at last week's meeting of the Joint Committee on Finance, Public Expenditure and Reform that any ESM investment in the banks would be by way of equity capital. Earlier, the Minister referred to "a loan". Will it be a loan from the ESM to financial institutions or will it be equity which may not necessarily have to be repaid? It would be of great assistance if the position in respect of this issue could be clarified.

In the context of the various bail-in measures and the liability cascade - again, the joint committee discussed these last week - it seems that the very last thing to be accessed in the context of rescuing banks will be the ESM. Even those with deposits in excess of €100,000 above the deposit guarantee threshold will be obliged to stump up their cash and take a hit before the ESM is invoked to support banks in financial difficulties. The way the ESM is taking shape in terms of the support it can potentially provide for banks in financial difficulty is deeply disappointing. The only reason we are supporting this legislation is because it keeps the door open in the context of Ireland securing a deal on bank debt. When replying, the Minister must confirm to the House that the Government will be applying for such a deal as soon as the door is opened in the first week of November. In my view, such a deal is essential.

I will leave it at that. We will support the Bill and we look forward to engaging on Committee Stage. I thank the officials for the information and guidance they gave on the Bill at the pre-legislative hearing last week. The whole thing is very rushed but I acknowledge that is outside of the control of the officials.

I am looking at the Bill through the prism of the Irish context. I see no likelihood that Ireland is going to be able to avail of this fund in respect of future capital shortfalls in our banks. The reality is that with the bail-in procedures in place, arrangements for depositors of more than €100,000 and the relative financial stability that this State now enjoys, the likelihood of being able to access the ESM fund for direct recapitalisation or to plug new capital shortfalls is remote. It is highly unlikely. The only potential benefit in the short term to Ireland relates to the issue of retroactive recapitalisation. That has been kicked to touch for long enough. Article 14 of the guidelines attached to the direct recapitalisation instrument are vague and rather non-committal, suggesting, essentially, that it remains a matter for the eurozone finance ministers. They have been resiling and backsliding on the original commitment ever since June 2012. At the time it was heralded in this country by the Taoiseach, the Tánaiste and others as seismic, as representing a game changer and as being greatly positive for Ireland. At this stage people are entitled to ask whether it will ever happen. The least the Government can do is confirm that November will see a formal application from this country in order that we will know once and for all whether the bank debt will be dealt with through the retroactive provisions set out in the guidelines.

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