Further blow to hopes of bank debt recapitalisation

Ireland’s chances of convincing EU leaders to recapitalise the €32bn bank debt decreased even further last night as finance ministers said they will cap the amount of the EU’s rescue fund that goes towards banks at around €40bn.

Finance Minister Michael Noonan, on his way into the meeting of eurozone ministers, played down the issue, saying he hoped the Government would resolve many of the legacy problems it inherited by the end of its mandate in 2016.

The ministers had their first discussion on how the European Stability Mechanism — the EU’s rescue fund — would break the link between the taxpayer and the privately owned banks. One of their decisions was that they would put a ceiling on the amount of the fund that would be used for this. They were coalescing around a figure of half the paid-in capital, which would amount to €40bn when member states pay in their final contributions.

They ruled out using any of the additional callable capital of €620bn, but said they hoped they could attract private capital alongside the ESM contribution to maximise capacity.

The new president of the eurogroup, Dutch finance minister Jeroen Dijsselbloem, said they wanted to preserve the capacity and high credit rating of the ESM: “We want to maximise efficiency without putting additional strains on national budgets.”

He added that the general opinion of the meeting was that they should look into attracting private capital to boost the funds they would have for recapitalising failing banks.

“The possibility could be interesting on a number of conditions — we don’t want to jeopardise the rating of the ESM, increase financial stress on the governments in terms of contributing extra capital or guarantees — but this will be further developed.”

They will continue to have discussions about the rules and the economic working group will take it further, but nothing will be agreed until everything is agreed.

They had not yet agreed on definitions for legacy assets or whether they would include retrospective funds as in Ireland’s case. “That is for the upcoming months,” Mr Dijsselbloem said.

However, other sources confirmed, as the Irish Examiner reported at the weekend, that refunding the Government the money it put into the three pillar banks — AIB, BoI and PermanentTSB — has been ruled out by Germany and other countries.

Mr Noonan informed the meeting of the deal on the promissory notes and the liquidation of IBRC. European Economics Commissioner Olli Rehn said that Ireland had now reached the three quarters mark of its programme, and while it still faced important challenges there was growing confidence in its prospects.

He said that it was a major step towards getting back into the markets and had boosted market confidence in the country. Speaking about the eurozone generally, he said that while there was a steady advance of the pricing in of the benefits of evolving reforms, the short-term outlook was not good.

Asked about exchange rates which was put on the agenda last week by French president Francois Hollande, who believed the euro was now too strong, Mr Dijsselbloem said the meeting had agreed that it should be discussed at the G20.