ANALYSIS:IF THE Government's campaign for bank debt relief had gone another way, this meeting in Luxembourg might have been the crucial one. Alas no.
The signal went out weeks ago that the October “deadline” – the word uttered by commissioner Olli Rehn – was fading fast. The Irish banks and the perplexing riddle of their onerous “legacy” debts were not even on the formal agenda when finance ministers met last night.
The meeting comes after a joint German-Dutch-Finnish statement said national bodies should remain on the hook for legacy, or historic, debts.
This did not deter Michael Noonan as he held fast to the conclusions of the all-important June summit, which established the principle of decoupling bank and sovereign debt.
“I think that after the 29th of June, the markets priced in the decisions ... and the Helsinki statement seemed to put a bit of stress on that for maybe 10 days,” the Minister said. “But ... the spreads are back down to where they were after the June statement so I think the market perception is that what was said on the 29th of June is the policy and that it will be implemented.”
He also noted a Dutch statement which said the “legacy” referred to in Helsinki meant insolvent institutions “no longer functioning as banks” and that such a definition did not include functioning banks.
“So in terms of applying that formula to Ireland, they were excluding Anglo Irish Bank, but were including AIB and Bank of Ireland,” Noonan said.
That may well be so but there is no deal yet and all the chatter suggests none is in any way imminent. Indeed, Noonan’s comments appear to lob the biggest questions into next year. What is more, European officials say their scrutiny of the legacy debt question is at a very early stage only.
European Stability Mechanism chief Klaus Regling batted away questions about the inclusion of legacy debts in any ESM rescues. “This point has not been discussed in any European body so far,” he said.
Regling was speaking alongside euro group president Jean-Claude Juncker after the inaugural ESM board meeting, an event which drew protracted talks on the establishment of the permanent bailout fund to a close.
In succession to the temporary European Financial Stability Facility, the ESM has initial firepower of €200 billion and will have €500 billion eventually.
“The instruments of the ESM are the same as the instruments of the EFSF, namely country programme loans under full adjustment, precautionary arrangements, interventions on primary and secondary market, and bank recapitalisation via the treasury of a country,” Regling said.
Quite when the fund is actually deployed remains a mystery.
Spain has been under pressure to seek more rescue aid but a line of ministers insisted yesterday that there was no immediate need for a full-blown sovereign bailout.
But the country may yet need the ESM to recapitalise its banks, something which would create a precedent for Ireland. However, there is still no sign of a formal application from Madrid.
The waiting game continues.
