The statement issued early this morning at the outcome of the EU Leaders’ summit is to be welcomed in that it finally acknowledges at European level the need to break the link between bank debt and sovereign states, according to Fianna Fáil Finance Spokesperson Michael McGrath.
Deputy McGrath stated, “The insistence of European authorities that bank debt be treated as sovereign debt has lay at the heart of this crisis since 2008. The recognition of EU Leaders this morning that this link should be severed is long overdue but welcome nonetheless.
“The statement refers to the ESM having ‘the possibility to recapitalise banks directly’ when an effective single supervisory mechanism is established. This could potentially have direct benefits for Spain and Ireland amongst others. Spain and Italy have also successfully secured a commitment that the EFSF/ESM instruments become active in the debt markets in order to reduce sovereign borrowing yields.
“It has been reported that the Italian and Spanish Prime Ministers had threatened to block the growth pact unless their demands had been met. In the face of this, it seems German Chancellor Merkel agreed to the concessions which have also opened the door for Ireland.
“The possibility of directly recapitalising banks and the reference to examining the Irish financial sector in order to improve the sustainability of our Programme of Assistance offer hope of a deal for Ireland. However, we have been told since last September that a reengineering of Ireland’s bank debt was being examined but no tangible progress has been made.
“The Irish government now need to answer a number of questions. How much of the €64 billion injected into Irish banks can be revisited and what the consequences will be for next December’s budget? Irish people will only feel the benefit of last night’s decisions when it results in the government having to impose a less difficult budget than had been expected. The government now needs to spell out exactly what deal we are seeking on foot of this morning’s decision and what the consequences are for Ireland."