Irish bank debt deal gets shot in arm in Bundestag
However, other member states will have to pass similar rules which are already enshrined in ESM treaty
GERMANY has approved draft laws including a plan that could give Ireland's bid for a debt deal a shot in the arm.
The laws ensure that biggest European economy is in line with rules that allow the European Stability Mechanism (ESM) to recapitalise banks directly under strict circumstances.
The move is a positive sign for Ireland in light of ongoing talks about recapitalisations that had centred on Bank of Ireland and Allied Irish Banks - these talks are being headed up by Finance Minister Michael Noonan.
However, given that Bank of Ireland has paid back the money pumped into it, and the State still has a 15pc stake in the institution, it is understood that any recapitalisation talks would centre around Allied Irish Banks.
The bank is still owned by taxpayers who were stumped with over €60bn after the sector collapsed although the Government has not yet decided what would be the best route to take with AIB and it could still be sold privately.
In addition, decisions on recapitalisations would be taken on a case-by-case basis and only €60bn of the ESM's total €500bn fund has been allocated for these scenarios.
Other member states will have to pass similar rules to Germany - they are already enshrined in the ESM treaty.
One of the next steps in the plan will be a common approach to preventing banks in trouble from dragging down governments in euro zone states, as happened here in Ireland.
With the laws, Germany is pressing ahead of EU requirements in protecting German taxpayers from having to foot the bill when a bank gets into trouble.
Instead, in a process dubbed a 'bail-in', creditors and owners will have to take losses from 2015, a year before EU rules take effect.
Another law in the package ensures Germany is in line with EU rules that allow the
Germany needs to pass the laws to implement Europe's banking union plans.
But a panel of advisers to the German government and parliament immediately criticised the plan.
"Even the new rules have some loopholes," said Daniel Zimmer, the head of the five-member monopoly commission that advises on competition and regulation. "It must be ensured in future that creditors' liability is implemented forcefully."
Germany's private banking lobby BDB welcomed the laws in principle as a step towards banking union, but added that "in order to avoid distorting competitiveness ... bail-in regulations (should) come into effect at the same time across the EU."
The draft bill will have to be approved by the German parliament.
The European Central Bank will begin supervision of big banks across the 18 countries that use the euro later this year in a first step in banking union.
(additional reporting Reuters)