|Irish Minister for Finance Michael Noonan at the Eurogroup meeting, Brussels, March 14, 2011.|
Ireland's Bank Bailout Request to EU: Minister
for Finance Michael Noonan on Monday attended his first meeting of the Eurogroup
ministers of finance of the single currency area. He set out the scale of the
banking challenge facing the new Irish Government and said Ireland needs more
direct involvement of the EU institutions in finding a solution to the crisis.
Michael Noonan is taking the right approach but
he needs patience as he shouldn't expect a rush to help.
Finfacts has said in response to the siren
voices of the hurlers on or in the ditch, calling for drastic remedies such as
debt default, that in the early months of the EU-IMF program, it's unrealistic
to expect the EU authorities to agree a dramatic change in the program.
A diplomat who attended the Eurozone summit on
Friday told Agence France Press that Chancellor Merkel, President Sarkozy and
Dutch Prime Minister Mark Rutte made clear to Taoiseach Enda Kenny that it would
be impossible to explain to voters a re-negotiation of Ireland's bailout terms
after just four months.
Before the Eurogroup meeting, Michael Noonan met
Jean-Claude Trichet, ECB president, Jean-Claude Juncker, Eurogroup head and
Luxembourg and Olli Rehn, European Economic and Monetary Affairs commissioner.
Rehn told a press conference after the
Eurogrop meeting: "We had a very good meeting with
Finance Minister Michael Noonan this morning. It is essential that Ireland will
complete the ongoing round of stress tests, which in Ireland has the deadline of
the end of this month, the end of March. That will show the real state of the
Irish banking sector."
The Minister had asked the EU officials for
longer deleveraging process for the Irish banks to avoid firesale of assets and
for the European Central Bank to provide medium-term liquidity to banks, so they
do not have to rely on two-week funding.
The ECB is trying to wean Eurozone banks off it emergency funding facility.
“It’s generally known in Ireland that we
need two things at least,” the Minister said to
reporters after the meeting with Trichet.
“We need medium-term facilities from the ECB so that the liquidity problems
in the Irish banks are not addressed on a fortnightly basis with a rollover of
the liquidity funding every two weeks,” he said.
“We need more certainty into the medium term and I made my case strongly on that
“Secondly, if, in downsizing the banks, the deleveraging has to take place over
too short a period, bank debt will become crystallised quickly and that’s a
burden which is not necessary to bear in my view. So one of the things I said at
all the meetings was we would require a longer deleveraging period so that we
can restructure the banks.”
The target loan-to-deposit ratios for Ireland’s
banks is 122.5%.
Stanching the outflow of overseas deposits is a
Noonan said stress tests on the banks meant
Ireland would not have "hard figures" until after a March 24-25 EU summit
which aims to agree a permanent response to the sovereign debt crisis.
He warned that the amount required to fix the banks "will exceed" the
€10bn that has been agreed for the latest recapitalisation program.
In January, the Central Bank appointed 3 expert
external advisors to assist it to execute the Prudential Capital Assessment
Review (PCAR) and Prudential Liquidity Assessment Review (PLAR):
The giant US fund manager BlackRock Solutions was assigned to perform reviews of
asset and data quality of those banks participating in the PCAR and PLAR.
US consultants, The Boston Consulting Group, were to provide project management
resources for the Central Bank’s Financial Measures Implementation Project. It
is to also contribute advice for the PCAR and PLAR.
Barclays Capital was assigned to provide advice on banking sector structure
issues. It is also contributing advice on matters arising from the PCAR and PLAR.
|Jean-Claude Trichet, President of the European Central Bank, Jyrki Katainen Finnish Minister for Finance and Olli Rehn, member of the European Commission, Brussels, March 14, 2011.
Karl Whelan, an economic professor at University College Dublin, proposes
a solution in today's Irish Times for the €150bn owed by banks to the ECB
and the Irish Central Bank.
He says: "In the absence of the banks raising private funding of anything
close to this amount, I believe the answer is that the Central Bank loans need
to be converted to equity. The problem is that many suspect the banks are
insolvent but the scale of the insolvency hole is simply unknown. Under these
conditions, it is hard to expect international stock or bond investors to hand
over their money. However, if the €150 billion in funding from the ECB and Irish
Central Bank is converted into equity, then these banks will immediately be
solvent beyond even the doubts of the most pessimistic observers and, at that
point, they could be sold into private ownership.
This equity conversion could work as follows. The European Financial Stability
Facility could issue €80 billion in bonds, loaning these funds to the Irish
banks, who would then pay off the ECB, allowing it walk away unscathed. The EFSF
would then convert its €80 billion loan into an equity stake. Similarly, the
Irish Central Bank would convert its ELA loans into equity with a legal promise
from the Minister for Finance that any losses on the equity share would be
covered by the State. The banks would then be owned by the EU and the Irish
State but would be prepared for sale to private ownership."
It could be a good thing but don't expect it to happen soon.
Officials from the ECB are due to visit Dublin