THE PRESIDENT of the European Council has said the Eurozone’s new bailout fund could be permitted to share the burden of bailing out European banks earlier than had previously been expected.
Herman van Rompuy says the European Stability Mechanism, the permanent fund which came into effect last week, will have the possibility of recapitalising banks directly, before a new pan-European banking watchdog is set up.
Van Rompuy’s interim report on a European economic union, published today, said the ESM could fund banks both “during the transition phase and after the establishment of an effective [single supervisory mechanism]” for the Eurozone’s banks.
It had previously been suggested that Ireland would not be in line for a banking debt deal, where the ESM would share the burden of recapitalising Ireland’s banks, until a supervisor had been set up and allowed to run for some time, so as to vouch for its strength and viability.
Current European calendars suggest such a body would not have been established until the end of the year, or possibly March – meaning it could have been the middle of next year before the supervisor carried enough confidence to allow a deal be reached.
It is thought that any deal to allow the ESM to recapitalise the continent’s banks – primarily intended to apply to Spain, where the government could need up to €60 billion to ensure its banks survive the current crisis – would also apply retrospectively to Ireland.
Though more powerful countries like Germany, Finland and the Netherlands have said such a deal could not apply to “legacy” banks, they are open to allowing the ESM to be retrospectively involved in sharing the burden of bailing out Irish banks which are still in operation.
This means that while the €34.7 billion Ireland has put into the former Anglo Irish Bank could not be reclaimed, some of the €25.4 billion given to AIB and Bank of Ireland could be returned if the ESM was to share the burden of bailing them out.
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