Friday 19 January 2018

ESM fund could be used to cover bailout cost of AIB and BofI

Finance Minister Michael Noonan
Finance Minister Michael Noonan
Finance minister Michael Noonan

Peter Flanagan in Luxembourg

THE European bailout fund could still be used to cover the near €30bn cost of the rescue of AIB and Bank of Ireland after ministers said it would decide on a "case by case" basis how it would be implemented.

At a meeting of Eurozone finance ministers in Luxembourg tonight, the so called "Eurogroup" of ministers agreed that the European Stability Mechanism (ESM) could be used to "retroactively" cover the cost of certain bailouts. That means that the ESM could be used to take over at least part of the near €30bn that was pumped into the two Irish banks three years ago.

Speaking after the meeting last night, finance minister Michael Noonan said the decision meant Ireland still had a chance to take advantage of the fund.

It is unlikely any decision about Ireland's case will be made until next year, however.

There remains opposition to the ESM being used retroactively among some ministers.

Germany’s finance minister Wolfgang Schaeuble said there was “little leeway” for the EU’s European Stability Mechanism to be used to retroactively pay for the bailing out of AIB and Bank of Ireland.

“The capacity of the ESM is limited,” Mr Schaeuble said.

“It makes no sense to raise false expectations. That only leads to disappointment in markets.”

His words were echoed by Holland’s junior finance minister Frans Weekers, who claimed his country was “not in favour” of the fund being used retroactively either.

Earlier in the day Mr Noonan insisted he would continue to seek a deal for Ireland on the ESM.

“We’ve always argued Ireland is an exception case. We’re not arguing for all our colleagues in the Eurozone, we’re arguing for Ireland and we’re saying that in effect we were forced into a position by the European Central Bank where we weren’t allowed to bail-in senior bondholders.

“If the rules that are emerging were in place then when we were recapitalising the banks, the ESM would have assisted in that,” he added.

Irish bond yields have risen steadily in recent weeks, while the NTMA had to pay a much higher yield on short term T-Bills it sold yesterday than at a similar auction last month, but Mr Noonan dismissed any concerns about the state’s funding position.

“This is the ups and downs of the market so it was quite successful. The market seems to be quite disturbed internationally today so it was great to get the T-Bills away and at such a good price. It was also oversubscribed by about 300pc so that is encouraging as well.”


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