Commission hopes ESM will not be used to recapitalise banks

Government planned to use fund to help meet cost of rescuing AIB and Bank of Ireland

Students take part in an anti-troika protest outside the presidential palace in Nicosia today. The chairman of Cyprus's biggest commercial bank offered his resignation and thousands of students protested in the capital as banks stayed shut to stop a run on deposits. Photograph: Yannis Behrakis/Reuters

Students take part in an anti-troika protest outside the presidential palace in Nicosia today. The chairman of Cyprus's biggest commercial bank offered his resignation and thousands of students protested in the capital as banks stayed shut to stop a run on deposits. Photograph: Yannis Behrakis/Reuters

Tue, Mar 26, 2013, 14:12

The European Commission has confirmed that it hopes the ESM fund will not be used for directly recapitalising banks.

Speaking this lunchtime , a spokesman said that while work is continuing on the instrument, the Commission hopes to be in a position that the deployment of the instrument won’t be necessary.

It confirms comments by the chief of the euro zone finance ministers Jeroen Dijsselbloem yesterday, who questioned whether the ESM bailout fund will ever be used to rescue banks directly.

“We hope to be in a position where the deployment of such an instrument will not be necessary,” the spokesman said.

“[This] does not mean that an agreement on such an instrument is not something that we continue to work towards, and work on the instrument for the ESM which will allow for direct recapitalisation to be an option available to us continues.”

The Government is hoping to deploy the ESM to help meet the cost of rescuing Allied Irish Banks and Bank of Ireland.

Mr Dijsselbloem said in an interview yesterday with the Financial Times and Reuters, that he hoped the ESM would not be used to directly recapitalise banks.

“We should aim at a situation where we will never need to even consider direct recapitalisation,” Mr Dijsselbloem said in his interview.

“If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller... let’s deal with the banks within the banks first.”

However, Mr Dijsselbloem later rushed out a statement saying Cyprus was a specific case with exceptional challenges which required bail-in measures.