German bank group supports debt deal

Mon, Dec 3, 2012, 00:00

Using the euro zone bailout fund to lift bank debt from the State “makes a lot of sense”, given Ireland’s progress towards economic recovery, according the head of a German banking group.

Michael Kemmer, general manager of the Association of German Banks, said he “wouldn’t exclude” the European Stability Mechanism taking direct stakes in the Irish banks – Bank of Ireland, AIB and Permanent TSB – but that it was a proposal for politicians which was “not very concrete” at this time.

“Ireland is a special case and most of increase in the Irish debt over the last years resulted from the refinancing needs of the banks, so it would make a lot of sense to take away from the State this burden and to put it directly to the ESM,” said Mr Kemmer on a two-day trip to Dublin.

He said that, for countries such as Ireland that are making “strong attempts” to emerge from the crisis, banks and politicians should be do whatever is necessary to avoid too much austerity.

“It is always this small balance between necessary reforms and hard cuts but on the other hand you can’t do it in a way that brings growth totally down,” said Mr Kemmer, whose organisation represents some of the biggest banks in Europe, including Deutsche Bank and Commerzbank.

Euro zone supervisor

Creating a single euro zone supervisor at the European Central Bank was essential, if there was to be “more Europe”, he said, but he felt the timetable should be delayed to make sure it was done right.

“There is a lot of work to be done. Thoroughness is more important than speed so we think the current timetable is very ambitious. We don’t think it is a realistic one,” he said.

“It is better to have it six months later than to have it earlier without a real construction, governance or rule book.”

On topic of German banks lending to Irish banks to fuel the Irish credit bubble, Mr Kemmer said banks had to be responsible for their actions and there was “too much optimism” in the pre-crisis interbank lending. Banks had strengthened their risk management since the 2008/2009 crisis.

The use of Dublin-based companies to move debts off the balance sheets of German banks was the responsibility of the banks themselves and German supervisors, not Irish supervisors, he said.

“There is nobody blaming Ireland for being responsible for these things. These are the responsibility of every single bank which set up such an entity,” he said.