An imminent deal to postpone Ireland’s bailout repayments will be enough to secure a smooth exit from the EU-IMF programme later this year, according to the chief of the euro zone finance ministers.
The position set out by Dutch minister Jeroen Dijsselbloem is in defiance of the Government's claim for further aid to ease the cost of propping up Allied Irish Banks and Bank of Ireland.
Although the IMF has strongly backed Dublin's push for the ESM rescue fund to bear historic debts of the two banks, Mr Dijsselbloem indicated in an interview with The Irish Times yesterday that a decision on that front might not be taken for at least another year.
That is well beyond Ireland’s anticipated return to private debt markets at the end of the bailout and means he expects the Government will be able to do without a specific pledge of bank debt relief from the ESM fund.
Asked if the return to market financing would be eased by a definitive commitment of ESM aid, Mr Dijsselbloem insisted that the two issues should be separated. "The access to the markets is relevant right now, and this year, and we will try to help Ireland and Portugal in exiting the programmes," he said.
"The direct recap instrument ESM isn't available at the moment," he added. "What we can do is to look at the maturities of the EFSF loans and that's why we are . . . discussing a proposal by the troika on more time for Ireland and Portugal. That would greatly help both countries going back to the markets and finding their own funding."
While agreement on whether the ESM can retroactively bear historic debts is anticipated in June, Mr Dijsselbloem said a decision on which countries can use the scheme will only be taken after a common bank supervisor is set up in the middle of next year.
The Government campaign for ESM aid relies on a pledge by euro zone leaders to break the link between bank and sovereign debt, but Germany and like-minded allies, such as the Netherlands and Finland, remain sceptical.
Last week, the IMF reiterated its call for the ESM to take equity stakes in the two Irish pillar banks, arguing that it could play “an invaluable role in marking prospects for recovery and debt sustainability more robust”.
However, Mr Dijsselbloem said he could not predict whether the retroactive application of the direct recapitalisation instrument would be sanctioned at all.
He was speaking in University College Cork ahead of a two-day meeting of EU finance ministers and central bank governors which begins this morning in Dublin Castle. A political agreement to extend the maturity of Ireland's rescue loans is widely anticipated at these talks.
Mr Dijsselbloem’s remarks came after the former IMF mission chief to Ireland, Ashoka Mody, said the construct of Ireland’s original rescue package was flawed.
Interviewed on RTÉ radio, Mr Mody found fault with the reliance on “austerity” and the failure to tackle bank bondholders. “Clearly the experience, if experience was needed, has demonstrated that reliance on austerity is counterproductive.”
Responding yesterday, Taoiseach Enda Kenny said hindsight was a wonderful thing.