Pearse Doherty (Donegal South West, Sinn Fein)
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2. To ask the Minister for Finance if he is as confident as he was in June 2012 that the ESM will be used to retrospectively recapitalise Ireland’s banking debt; and if this issue was discussed at recent ECOFIN and Eurogroup meetings. [49576/13]

Pearse Doherty (Donegal South West, Sinn Fein)
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There was a huge fanfare 17 months ago when European leaders agreed to consider using the ESM to recapitalise banks, and at that time the Minister told the Irish people it would be applied retrospectively. However, there is serious concern now that the hope given to the people at that time that the many of billions of euro pumped into our pillar banks would be recouped to Irish taxpayers is disappearing. I raise this question because I want to keep this issue on the agenda and to find out what discussions, if any, happened at the ECOFIN or Eurogroup meetings this week in regard to retroactive recapitalisation of our banks.

Michael Noonan (Limerick City, Fine Gael)
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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.

Pearse Doherty (Donegal South West, Sinn Fein)
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Everybody in this House and the majority outside the House want to see the commitment given in June 2012 upheld and delivered. At the time I believed and said publicly that the Minister had oversold that commitment, because retrospectivity was not a part of the agreement. That said, it has been negotiated into some text recently. However, we must listen to the head of the Eurogroup, the German finance Minister, the troika and the head of the ESM. All of these, in one way or another, have told us that the chances of retroactive recapitalisation of our banks are slim, that it is impossible, not likely, or words to that effect. It seems the door is closing all the time. The Minister talks about separating sovereign debt from banking debt, but ECOFIN has agreed rules that state clearly that in the event that a comprehensive stress test reveals a capital shortfall, the established pecking order is as follows: first private sources, then national, and then euro and EU instruments-----

Seán Barrett (Dún Laoghaire, Ceann Comhairle)
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I will allow the Deputy to speak again.

Michael Noonan (Limerick City, Fine Gael)
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It is a long process, and the question of whether banks will be recapitalised through the ESM is part of the process of moving towards banking union. The conclusions of the October 2013 European Council outline the hierarchy of decision-making for bank recapitalisation - to which the Deputy referred - and continue to provide for direct bank recapitalisation by the ESM as part of the process. Of course there are different opinions, and the Deputy has mentioned some of those who see a very limited role for direct capitalisation by the ESM. However, other countries are strongly in favour of it. I believe the issue will only come to a head when the capital requirements of the European banking system are identified through the stress testing next autumn, but it is part of the process.

The Eurogroup does not use the word "retrospective" in the piece I cited. It refers instead to the "potential retroactive application of the instrument" and says it should be decided on a case-by-case basis and by mutual agreement. The word "retroactive" is the word being used, rather than "retrospective".

Pearse Doherty (Donegal South West, Sinn Fein)
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Again, I go back to the point that the Government seems to have taken its foot off the pedal in regard to this measure. There was a window of opportunity when Spain was in crisis, which was when this was agreed. I believe many of the European leaders would not have wanted it, but that was when we should have stuck the ball in the net. Now, 17 months further on, it will be a harder job for the Minister and the Government to deliver the commitment given, although I fully support their efforts.

Can the Minister elaborate on what efforts are being made? The Minister did not raise the issue at the ECOFIN or Eurogroup meetings, although the issue of the pecking order was discussed at ECOFIN. When was the last time the Minister raised the issue at a formal meeting of ECOFIN and the Eurogroup? What has been the response of his counterparts at those meetings? For example, when we met with the troika recently, the ECB president did not talk about recapitalisation being off the agenda. It is on the agenda. What he said was that retroactive application of the instrument was off the agenda. That is where the difficulty lies, due to political circumstances and all the rest. When was the last time the Minister raised the issue of retroactive recapitalisation for Ireland, given that the Taoiseach took it upon himself to write to every EU leader in the past three weeks saying that the fulfilment of this commitment was required in order for us to get back into the markets sustainably after the troika exit?

Michael Noonan (Limerick City, Fine Gael)
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The meetings of the Eurogroup and ECOFIN, like meetings in this House, are run in an orderly fashion. If these issues are on the agenda they are raised, but if not, we do not get up and shout and roar during discussion of another topic. On any occasion on which the issue of bank recapitalisation has been part of the agenda, I have raised the question of retroactive recapitalisation.

Pearse Doherty (Donegal South West, Sinn Fein)
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It was on the agenda, according to the Minister's statement.