SPD rules out deal on banks’ legacy debt

Germany’s Social Democratic Party (SPD) has ruled out supporting retrospective bank recapitalisation if the party enters a grand coalition under Chancellor Angela Merkel.

Carsten Schneider, SPD budgetary spokesman and a coalition negotiator in Berlin, also said direct recapitalisations should only be available in future for countries participating in a European programme to tax financial transactions (FTT).

Mr Schneider said he had "no problem" with refinancing of banks underwritten by the FTT. "But if the funds have to be transferred from national budgets then there will be no support from the SPD," he told The Irish Times

The remarks attach difficult conditions for future recapitalisations of Irish banks from the ESM bailout fund. He also has underlined his party’s opposition to any reimbursement of public money invested by the Government into banks during the crisis.

In their June 2012 meeting, EU leaders agreed to allow bank recapitalisation after establishing an EU supervisory mechanism, a move Taoiseach Enda Kenny described at the time as a “game changer”.

Since then, however, Germany and others have distanced themselves from that prospect. Last month, German finance minister Wolfgang Schäuble said retrospective bank recapitalisation was “not probable for the time being”.

Any recapitalisations would require Bundestag backing but Mr Schneider and the SPD have always been more wary of anything that risks further exposure of German taxpayers to other countries' debt.

In a clear message to his likely coalition partner yesterday in Berlin, Mr Schneider said there “should be no illusions” about retrospective bank recapitalisation.

“It was a mistake of Schäuble to open this possibility as it was totally unrealistic. That possibility is, politically speaking, entirely unrealistic. I think it was a mistake to open this door as you can only disappoint expectations later.”

The SPD’s link between future bank recapitalisations and the FTT creates a dilemma for Ireland. With Britain not participating in the FTT, the Government is planning to stay out as well out of concern that joining up would put the Irish financial sector at a disadvantage to the City of London.

Mr Schneider said a recapitalisation regime would only come online by 2015 at the earliest, and then only after backing from the Bundestag.

“I wouldn’t rule out [future] bank recapitalisations ... if we get the financial transaction tax Europe-wide to finance it, otherwise no,” he said.

As Ireland announced its EU/IMF programme exit yesterday, finance ministers in Brussels agreed that no backstop would be necessary for Spain as it approaches the end of its €41 billion bank bailout at the end of this year.

'Reform momentum'
Speaking after the meeting of finance ministers last night, eurogroup chairman Jeroen Dijsselbloem said the overall situation of the Spanish banking sector had improved significantly, including banks' access to market funding. He stressed Spain needed to "rigorously continue the reform momentum" to address ongoing challenges, including high unemployment and vulnerabilities stemming from continued high private and external debt.

European commissioner Olli Rehn said exit strategies for programme countries would be developed on a case-by case basis, with a decision on Portugal, due to exit in June, to be made in due course.

On the Greek programme, Mr Rehn said that “significant progress still had to be made”.

Mr Dijsselbloem said it was “crucial” that Greece step up its efforts to agree with international lenders how to close a €2 billion financing gap in next year’s budget.

The most recent inspection by officials from the IMF, ECB and European Commission paused after commencing in September. There has been no progress since its resumption on November 4th.