Bank debt solution on EU ministers’ agenda

Ireland should come closer to knowing if its €32bn of bank debt will be taken over by the EU’s rescue fund, the ESM, after eurozone finance ministers meet on Monday.

The ministers are to have a political discussion about what bank debt the ESM will recapitalise once the ECB takes over supervision of the banks.

Germany, the Netherlands, and Finland insist the ESM will not fund the debts of banks incurred before the ECB took over the supervision.

Talks on the details have included a compromise solution which would see the member state continue to pick up part of the cost of recapitalising their troubled bank.

While many countries object to this, saying it fails to break the link between banks and sovereigns, any agreement requires unanimity, so a compromise must be found.

EU sources said the discussion will centre on defining a legacy asset, who is responsible for it, is there a time limit, would a percentage be set for how much a government should shoulder, and if this responsibility will diminish gradually over time.

The answers to these questions will provide the basis for draft guidelines on direct recapitalisation.

In Ireland’s case the issue is one of retroactivity rather than legacy assets, the sources said. This question is a separate, political one asking if the ESM can cover a debt incurred before the fund was established.

There was no indication that the country was any closer to agreeing a deal on the debt that would probably involve the Government handing over its shares in the banks in exchange for a sum to be agreed, but which the IMF has said should be €24bn. This would be used to reduce the country’s debt.

Michael Noonan, the finance minister, will chair his first council meeting on Tuesday when the finance ministers from all 27 countries meet in Brussels. They are expected to give the go-ahead to 11 countries to put in place a financial transaction tax, although Ireland, Britain, Sweden, and others will not be part of it.