Pearse Doherty (Donegal South West, Sinn Fein)
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20. To ask the Minister for Finance when he will apply for a retroactive recapitalisation of the Irish banking sector through the ESM. [37046/14]

Michael Noonan (Limerick City, Fine Gael)
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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 ECB, is in place and operational, the European Stability Mechanism, the ESM, could recapitalize 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 in relation to the retroactive application of the instrument. Therefore, the agreement, that we were active in negotiating, keeps open the possibility to apply to the European Stability Mechanism for a retrospective direct recapitalisation of the Irish banks, should we wish to avail of it.

What is now required is 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. The aim is to have this process completed by early November this year, subject to completion of national approval procedures. For Ireland the European Stability Mechanism (Amendment) Bill 2014 which was published last week will fulfil this purpose.  The Board of Governors' decision would allow the ESM DRI to come into effect once the Single Supervisory Mechanism is in place and operational which is expected to be on 4 November this year.

In relation to retrospective recapitalisation, the draft guideline states that the potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement. As I have stated previously, it will not be possible to make a formal application to the ESM for retrospective recapitalisation before the Instrument is in place as expected in November. It would therefore be premature to make any submission in advance of that.