Skip to content. | Skip to navigation

Personal tools
Sections
You are here: Home Breaking news Juncker offers hope for help with legacy bank debt

Juncker offers hope for help with legacy bank debt

10 January 2013, 18:41 CET
— filed under: , , ,
Juncker offers hope for help with legacy bank debt

Jean-Claude Juncker - Sharon Bowles - Photo European Parliament

(BRUSSELS) - Eurozone head Jean-Claude Juncker offered some hope Thursday that the eurozone's new rescue fund could help ease the burden on countries that had to bail-out banks before it became operational.

The issue is especially important for Ireland, which wants the European Stability Mechanism to cover at least some of the huge debt overhang incurred when the government tried to save banks that were collapsing.

Lauding last year's launch of the ESM, Juncker told the European Parliament that there still remained a "major question mark" over its role, namely how it would address "legacy assets," a reference to banks that had already been taken over by the state.

"Do we deal with the past or only with future problems ... I think there has to be some degree of retroactivity in the mechanism, otherwise it loses some of its sense," said Juncker, who is due to step down soon.

As the global financial crisis worsened in 2008-09, Ireland's over-extended banks sought help from the government which in turn wrecked the public finances as it tried to prevent a complete collapse of the banking sector.

Dublin was forced to call in the EU and International Monetary Fund but it was still left with massive incurred debt of 64 billion euros ($84 billion), half of which is owed to the European Central Bank in the form of a promissory note which must be repaid over eight years.

The ESM, as part of wider efforts to police the banking system, is designed to prevent a repeat of this situation by having the key power to inject capital into failing lenders before they do too much damage.

On that basis, Ireland wants the ESM to recognise the help it gave to its banks and to recapitalise them retrospectively, a move which would cut its overall debt burden and allow it to exit the sovereign bailout programme.

The issue is controversial given fears that other countries such as Spain might seek similar treatment and that the ESM's funds could be used up tackling old problems rather than preventing new ones.

Sources involved in Ireland's bailout programme said its Troika of creditors -- the EU, IMF and European Central Bank -- agreed that Dublin should get some help via the ESM.

"We see that dealing with the promissory note issue would be useful to address the heavy debt service burden," one Troika source said.

Irish Prime Minister Enda Kenny told top EU officials in Dublin Wednesday that resolving the bank debt issue was a priority for the country's six-month EU presidency which runs to June.

"While you have a duty of responsibility in terms of the European agenda we have not lost -- and will not lose -- sight of our immediate requirement which is to deal with the question of the scale of our bank debt," Kenny said.

Economic and Monetary Affairs Committee


Document Actions