Ireland will continue to campaign for retrospective direct recapitalisation of its banks by the ESM fund despite continuing German opposition to the move, Minister for Finance Michael Noonan said yesterday.

In a subtle but significant change of reasoning, Mr Noonan told RTÉ radio that the Government would be negotiating on all fronts for debt relief.

“We [are] still in a position to negotiate support from Europe so our debt can move down towards the European average,” the Minister said.

With a growing sense in euro zone circles that Ireland’s strong performance under the bailout and imminent exit from the programme has lessened its case for further debt relief, Ireland may try to argue that its still-fragile fiscal position justifies further moves to alleviate the debt it incurred through the bank bailouts.

ECB executive board member Jörg Asmussen said on Monday that Ireland still faced risks, including from its banking sector and on the fiscal side. “The deficit compared to the European average is still very high,” he said.

Special case
The Government has consistently argued that Bank of Ireland and AIB should be eligible for direct bank recapitalisation by the ESM fund, having secured assurances in June 2012 that Ireland would be treated by European authorities as a special case.

This June, euro zone finance ministers agreed to examine the issue of “retroactive” deployment of the ESM’s direct recapitalisation instrument on a case-by-case basis.

However, German finance minister Wolfgang Schäuble said on Tuesday that retrospective bank recapitalisation for Ireland was “not probable” for the time being, noting that such a move would require a change in German legislation.

Mr Noonan said he was not concerned by Mr Schäuble ’s comments.

"I actually felt he left the door open," he said. While the door had allegedly been closed on a promissory note deal and an extension of Ireland's bailout loans, both had been achieved, he said.

Coalition discussions
He also stressed that the German finance minister's comments should be viewed in the context of ongoing coalition discussions in Germany, which has seen the Social Democrats Party take a tough line against Ireland's claims for further debt relief.

While Dublin is preparing for negotiations with its international lenders in the coming weeks on a strategy to exit the bailout, any decision on ESM direct recapitalisation is still a year away.

Direct recapitalisation will only be possible once the Single Supervisory Mechanism is established. With European finance ministers having given the final go-ahead to the SSM on Tuesday, the mechanism will come into force in about a year’s time.

Germany hardened its stance against a common resolution fund for the euro zone at a finance ministers meeting in Luxembourg this week, reiterating its preference for a network of national supervisors, and raising questions about the rate of progress on banking union.