Wednesday 21 March 2018

Hopes fade over eurozone deal on €28bn bailout costs

Breakthrough falters as issue of retroactive funds 'unresolved'

Dutch finance minister Jeroen Dijsselbloem: ‘June decision’
Dutch finance minister Jeroen Dijsselbloem: ‘June decision’
Donal O'Donovan

Donal O'Donovan

Hopes are fading of a deal later this week to allow the eurozone's bailout fund to help cover the €28bn cost of bailing out our banks.

A breakthrough on the issue in Luxembourg this week had been on the cards after influential Dutch finance minister Jeroen Dijsselbloem said a decision would be made in June.

Mr Dijsselbloem heads the Eurogroup of finance ministers responsible for setting out rules on how the European Stability Mechanism (ESM) can finance bank rescues. One of the thorniest questions is whether previous bailouts like ours can be revisited once the system is up and running.

A leaked document published yesterday contains draft proposals on how the ESM bailout fund will work but does not include a provision on "retroactive" use of the funds in cases, including Ireland, where cash had to be pumped in before the rescue pot was established.

Finance Minister Michael Noonan has been pushing for a deal that would allow the ESM to be used "retroactively" in order to meet a European decision to "break the link" between banks and sovereigns.

It had been hoped that agreement would be reached at a meeting of the euro group of euro area finance ministers due to take place on Thursday and Friday.

A deal is seen as vital to Irish hopes of recouping some of the €28bn pumped into AIB, Bank of Ireland and Permanent TSB during the bank bailout.

That could potentially provide a major boost to the State's finances as early as 2014 when the fund is due to become effective for bank rescues.

However, the draft paper prepared by eurozone officials ahead of this week's eurogroup meeting in Luxembourg on Thursday leaves the issue of retroactive use unresolved.

The terms set out in the draft paper will disappoint those hoping the ESM could be used to make a decisive break in the link between failed banks and national governments.

Governments will remain on the hook for significant costs in future bank rescues, according to the leaked proposals.

National governments are being asked to contribute up to 20pc of the cost of a bank rescue, even where the ESM gets involved.

A country that wants the rescue fund to come to the aid of one of its banks will have to sign up to some level of troika-type oversight of its "general economic policies," the draft said.

The rescue pot available to rescue banks is set to be limited to between €50bn and €70bn of the total €500m ESM fund.

That would be less than Ireland alone spent on our bank bailouts.

Other conditions will mean that rescue cash will only be available in cases where a bank has a chance of survival and is regarded as of "systemic" importance to the wider euro area.

Ministers have not yet agreed to any of the terms under discussion.

Even if they do, the plan is to begin using the ESM for bank rescues only after a single European banking supervisor has been established to provide common oversight of banks – which is not expected until 2014 at the earliest.

Irish Independent

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