THE PROSPECT of Europe’s new bailout fund taking equity stakes in AIB, Bank of Ireland and Permanent TSB is opening up after the EU powers resolved to strike a debt-relief deal with the Government by October.
The release of direct aid from the ESM fund to these institutions ranks among the prime options for the Government as it prepares to negotiate a plan with the EU-IMF-ECB troika to rework Ireland’s bank bailout.
A revision of the Anglo Irish Bank promissory note scheme is also in the frame.
“It seems to me that what’s new in the European model is that the ESM, after the governors have made the decision, will be enabled to recapitalise banks directly without going through the sovereigns,” said Minister for Finance Michael Noonan.
“But we also have the legacy issue of the promissory note and treatment of that might be different. So these are the kind of things we’re working out in the negotiation,” he said after talks in Brussels.
Euro zone finance ministers unanimously endorsed a proposal for the troika to table a debt-relief plan to them in September in anticipation of a final deal with the Government the following month.
“That’s very positive . . . for Ireland, its chances of succeeding in its reform programme and thus it’s positive for the whole of Europe,” said economics commissioner Olli Rehn.
Concluding the deal will be delayed because EU leaders have made provision of direct bank aid conditional on the introduction of a new pan-European banking regulator.
Although EU internal markets commissioner Michel Barnier said this could be done by the end of the year, senior diplomatic and official sources believe that is unrealistic.
In addition, the delayed entry into force of the ESM now faces further disruption.
Germany’s highest court faced down political pressure yesterday for a swift preliminary ruling on a constitutional challenge against the treaty establishing the fund.
Investor concern about this development helped send the euro to a two-year low against the dollar. The drop came even as ministers cleared the release of an initial €30 billion for Spain’s banking bailout and gave the country extra time to cut its budget deficit.
The ministers also laid the groundwork for their rescue funds to buy up Italian bonds.
In Dublin, meanwhile, the Coalition undertook not to ratify the ESM treaty pending an appeal by Independent TD Thomas Pringle against the High Court’s rejection of his constitutional challenge against it.
Despite the lack of clarity over the ESM and new regulator, Mr Noonan said the negotiation with the troika would not be swept off course.
He suggested that a binding deal this autumn – even if it was to be implemented at a later date – would still improve Ireland’s standing with private debt investors.
“What I would envisage would be an agreement would be negotiated, it would be announced,” said the Minister.
“That would have a positive effect on the markets, which would be our primary concern. And then it would be a fixed agreement which would be implemented when the ESM was in a position to fund the recapitalisation,” he added.
The Government has ploughed some €64 billion into banks, including €20.7 billion for the nationalised AIB/EBS and €4.7 billion for the part-nationalised Bank of Ireland.
Anglo received €34.7 billion, but the interest on its €31 billion promissory note IOUs will bring the ultimate cost of that initiative to €47 billion.
Mr Noonan declined to say by how much he aims to reduce the banking debt. But he said he wants to achieve a significant improvement in the State’s debt sustainability.
The target for a deal in October was crucial in light of a looming IMF evaluation of Ireland’s cash position, he said.
“They have to do an estimate that the country has access to funding for 12 months ahead so the date would comply with all those reasons,” the Minister added.
