Ireland hopes to get agreement in principle on paying down the bank debt early in the new year, as it works through its final few months of its bailout programme.
Even though the country is unlikely to receive any money until 2014, it hopes that agreement on a deal will push down the cost of borrowing as Ireland re-enters the markets next year and the last of the bailout funding is repaid.
Despite warning shots from Germany that recapitalising banks would not be done quickly, Taoiseach Enda Kenny said he hopes the decision will be endorsed by EU leaders at the two-day summit in Brussels.
Finance ministers in the early hours of yesterday agreed the ECB should supervise all eurozone banks in future, setting up a single supervisory mechanism, that was a precondition for the EU’s rescue fund directly recapitalising banks.
The Taoiseach accepted it could be 2014 before the new system was fully up and running, but he said there was already agreement that the bank recapitalisation could kick in next March.
“I would hope that after the discussion by the heads of government at this meeting that this will be endorsed. It is another step in the right direction,” he said.
German finance minister Wolfgang Schäuble told the meeting that allowing the ESM rescue fund to directly recapitalise banks would not happen until well into 2014. “Again and again we have created expectations that we cannot fulfil and that is very dangerous. We should be modest,” he warned.
Ireland is seeking to recoup as much as possible of the €31bn it put into the main Irish banks and could see the Government selling off its almost 100% share in AIB and Irish Permanent TSB and its smaller share in Bank of Ireland to the EU’s rescue fund.
However, the Government will still have to convince Germany and other countries to buy the banks and to give as good a price as possible as this money will then be used to lower the debt rapidly rising past 120% of the country’s GDP.
Depending on what valuation they accept for the banks, the sum could be as low as €8bn.
However, whether the banks remain in Irish hands of not, they will all come under the direct supervision of the ECB together with up to 200 eurozone banks.
Currently the Central Bank is responsible for their supervision and while it will continue to have a role to play it will be largely at the behest of the ECB and its new supervisory structure. Under the new structure the three main banks in each country will come under the mantle of the ECB that will have access to all its details at any time.
The deal — hard fought by eurozone states over the past few months — was hailed as a breakthrough on the way to full banking union and breaking the link between the banks and states.
The other legs of this union, which will be much more difficult to achieve, will be a central deposit guarantee fund and a resolution fund to bailout or wind up troubled banks instead of having the taxpayer do so.
EU leaders were due to agree on a broad outline of further integrating the eurozone’s economies including more control centrally over a country’s budgets, a central budget from which member states can get a helping hand in hard times; a budget for the EU that could include its own money raising capacity through tax.
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