Terence Flanagan (Dublin North East, Independent)
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57. To ask the Minister for Finance his views on the ESM recent comments on the prospects for Ireland; and if he will make a statement on the matter. [3415/14]

Michael Noonan (Limerick City, Fine Gael)
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I understand that you are referring to the comments made by Mr. Klaus Regling, Managing Director of the European Stability Mechanism (ESM) during his recent visit to Ireland. He addressed the Institute of International and European Affairs on Friday 17th January and earlier that day I met him in my Department.  

During my meeting with Mr Regling, I updated him on developments in Ireland following the successful exit from the EU/IMF Programme in December, including the very successful bond issuance by the NTMA on the 7th of January. We also discussed recent developments in the Eurozone and the future prospects.

We issued the following agreed statement at the end of the meeting: "Ireland has undergone a major transformation in recent years and is now well positioned to grow and create jobs in the years ahead. Having been frozen out of the markets in 2010, the commitment of the Irish people and the support of funding from the IMF and the EU including the EFSF (the predecessor to the ESM) enabled Ireland to make the necessary fiscal adjustment over a phased period and to make a full return to the financial markets. The success of the Irish programme is evident and Ireland is now viewed as a safe place to invest. The market reaction to Ireland's exit strategy and in particular the very strong investor appetite for last week's 2024 Bond highlights the positive sentiment towards Ireland in the financial markets.

The recovery in the Eurozone is underway and the new architecture put in place since 2010, of which the ESM is a key component, safeguards the stability of the Euro area and will prevent similar crisis occurring in the future. There are many challenges ahead both in Ireland and across the Eurozone and policy makers must ensure that the recovery continues and that the focus is on generating economic growth and jobs."

I understand that a number of  the comments made by Mr Regling during his visit have been widely reported, including those to the effect that the reduction in Ireland's borrowing costs can be attributed at least in part to the decision not to impose losses on senior bank bondholders, and that there was, at this stage, no unanimous support in the euro zone for retroactive recapitalisation of financial institutions.  However, Mr Regling also noted that the timeline involved in this matter was dependant on the SSM coming into being, which is scheduled to come on stream in the latter part of this year.

The Eurogroup meeting of 20th June 2013 agreed on the main features of the ESM's Direct Bank Recapitalisation instrument (DBR). The DBR instrument will come into effect when the Single Supervisory Mechanism is operational. There is a specific provision included in those main features that provides for retroactive recapitalisation. This provision states that: "The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement." Therefore, the agreement that we were active in negotiating keeps open the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks should we wish to avail of it.  The SSM is expected to be place and operational towards the end of 2014.

Finally, as I have previously stated we will ensure that our case for retrospective direct recapitalisation is made at all levels as appropriate.  I remain confident that the commitment made by the Euro-area Heads of State or Government in June 2012 to break the vicious circle between banks and sovereigns will be respected. It is very clear that there is still a lot of negotiation to be done on this aspect of the facility but the agreement now in place keeps the possibility to apply to the ESM for a retrospective direct recapitalisation of the Irish banks open for us, should we wish to avail of it.