Michael McGrath (Cork South Central, Fianna Fail)
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52. To ask the Minister for Finance when he expects Eurozone banking union to be completed; the way this will benefit Ireland; and if he will make a statement on the matter. [24383/13]

Michael Noonan (Limerick City, Fine Gael)
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The European Council meeting of 29 June 2012 considered a report from the President of the European Council, in co-operation with the Presidents of the Commission, the Eurogroup and the ECB, which set out building blocks for future Economic and Monetary Union. One of these building blocks is an integrated financial framework, or banking union, which comprises three elements: an integrated system for the supervision of cross-border banks in the form of the single supervisor mechanism; a recasting of the deposit insurance scheme directive - the DGS directive - to further harmonise national DGSs; and a European harmonised bank recovery and resolution scheme, commonly referred to as the BRRD.

Significantly, the statement of the euro area summit clearly stated that when a single supervisory mechanism was in place for banks in the euro area, the ESM would, following a regular decision, have the possibility to recapitalise banks directly. Furthermore, to complete the banking union initiative, the European Commission will this summer bring forward proposals for a single resolution mechanism to co-ordinate the application of resolution tools to banks.

The European Council of December 2012 noted the Commission's intention to submit a proposal for a single resolution mechanism for member states participating in the single supervisory mechanism to be examined as a matter of urgency during the current parliamentary cycle of the European Parliament, that is, before May 2014. The stated position of the ECOFIN is that the building blocks for banking union should be put in place as soon as possible. This is a sensible approach and our work as EU President is helping to advance banking union in as speedy a manner as possible. As we move into the final weeks of our Presidency, we will continue to afford top priority to the legislative files relating to banking union in line with the conclusions of the European Council which set out a timeframe and a series of steps to achieving this.

The Irish Presidency is giving absolute priority to all the files relating to the promotion of banking union in line with the ambitious agenda for banking union. We have achieved agreement on the single supervisory mechanism, a very significant step forward towards ensuring financial stability and thus facilitating growth.

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We have also achieved agreement on the capital requirements directive IV, which aims to strengthen the capital requirements for banks and the overall effectiveness of regulation for the sector and enhance financial stability. We have made good progress towards agreement on the bank recovery and resolution directive as the essential next step, with a view to agreement by June of this year, as envisaged by the European Council. Once this has been agreed, the European Commission is expected to submit a proposal for a single resolution authority, which will build on the work now under way. The remaining work on the DGS can commence once the financing elements of the BRRD have been agreed.

An important complement to the banking union package is the development of an operational framework for the direct recapitalisation of banks by the European stability mechanism, ESM which should include the definition of legacy assets. It is expected that the ESM guidelines on the direct banking recapitalisation instrument will be completed by end June.

Michael Kitt (Galway East, Fianna Fail)
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I remind the House that there is one minute for a question and one minute for a reply.

Michael McGrath (Cork South Central, Fianna Fail)
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I hope the Leas-Cheann Comhairle will allow me some discretion to wish the Minister a very happy birthday tomorrow. I hope he gets some time with his family to enjoy the occasion.

I wish to raise the issue of banking union with the Minister and in particular its relevance to Ireland. We had some discussion on this issue at the recent Oireachtas Committee on Finance, Public Expenditure and Reform prior to ECOFIN. The objectives that were laid out in June 2012 - the separation of bank debt from sovereign states and the possibility of the ESM directly recapitalising banks once banking union was up and running - seem to becoming remote. I know it was Olli Rehn who made October 2012 the target for the achievement of one of those milestones. It is now May 2013 and by the Minister's own admission, it will be well into next year before we have any prospect of the ESM being in a position to recapitalise banks.

This is relevant to Ireland for two key reasons. They are the legacy issue - the €30 billion or so that went into the pillar banks and Permanent TSB - and the possibility, albeit perhaps remote, that the stress tests on the Irish banks later this year will identify the need for additional capital. When does the Minister expect that Ireland will be in a position to avail of this new structure and when will the structure be in place and ready to begin to implement the June 2012 decision so we can have a proper separation of banking debt from sovereign states?

Michael Noonan (Limerick City, Fine Gael)
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We have made significant progress in the Irish Presidency on the single supervisory mechanism which was the first major step that has now been agreed. We have also got agreement on the capital requirements directive, CRD IV, which the Deputy will recall was the directive which decided on the capital requirements of banks and introduces the new Basel rules with which banks must comply. The file now under discussion is the resolution directive and is the next essential step. It is not only the eurozone countries that are involved in the banking union. The other ten "outs", as they call them, are also involved and there must be agreement among the 27 but, so far, progress is in accordance with the timetable. We had a very good political discussion on banking resolution at the last ECOFIN and the Irish Presidency is bringing forward the bank resolution file again to the June meeting of ECOFIN, which I think is on 21 June in Luxembourg.

I am not quite sure whether we will agree it there. That will be a matter for the colleagues around the table but we will be coming close. The ground has narrowed quite a lot. When the single supervisory mechanism is in place and when there is agreement on the resolution file, the work which is progressing in parallel on the functions of the ESM and its ability to recapitalise banks will come into place. There is not much change in the timetable. There is a slight variation on when the single supervisory mechanism comes in but it was always intended that the ability of the fund to recapitalise the banks would be at the end of the process.

Michael McGrath (Cork South Central, Fianna Fail)
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Has there been any discussion - even a preliminary one - of the question of whether the ESM would have any interest in acquiring equity stakes in existing banks. It is a legacy issue in the case of Ireland? There have been interventions by Finance Ministers of powerful triple A-rated countries in recent months who have poured cold water on the possibility of the ESM dealing with legacy issues. Has there been any discussion of the likelihood of the ESM having any interest in taking stakes in Irish banks? Clearly, the ESM is the only way the State will be able to recoup any of the money it has put into these banks.

Michael Noonan (Limerick City, Fine Gael)
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The stability mechanism is not just an Irish institution; it is in place for all 27 member states. I have explained previously to the Deputy that three Eurogroup meetings included a political discussion to give guidance to the small group drafting the guidelines for the ESM. In that context, there were discussions on both legacy issues and retrospective application in recapitalisation. However, the process has not concluded. It was a political discussion to guide those drawing up the full regulation in order that they would not devise something that was totally politically unacceptable. We are keeping in place the distinction between legacy issues and retrospection. We know that the arrangements for our legacy bank, IBRC-Anglo Irish Bank, are done and dusted with the arrangements on the promissory notes. However, in the case of our trading banks, we want to keep the issue of retrospection and the possibility of retrospective recapitalisation on the table. So far, it is still on it.