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Written Answers - European Stability Mechanism

Tuesday, 15 May 2012

Dáil Éireann Debate
Vol. 765 No. 3

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 175.  Deputy Thomas Pringle Information on Thomas Pringle Zoom on Thomas Pringle  asked the Minister for Finance Information on Michael Noonan Zoom on Michael Noonan  his views on the following matter (details supplied) regarding the European Stability Mechanism; and if he will make a statement on the matter. [23843/12]

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan The capital structure of the European Stability Mechanism (ESM) is set out in the ESM Treaty which was signed by Euro Area Member States on 2 February 2012. To obtain the highest possible credit rating, the capital structure of the ESM will have a total subscribed capital of €700 bn. Of this amount, €80 bn will be in the form of paid-in capital by the Euro Area Member States, paid in five equal instalments from July 2012. The balance of €620bn will be callable capital. The contribution key for each Member State is set out in Annex 1 to the draft Treaty and is based on the ECB capital contribution key. For Ireland the key is 1.592% of the total paid and committed capital.

Ireland’s share of the €80 bn in paid-in capital, based on our contribution key, will be just above €1.27 bn paid in five equal instalments of €254 m. Unlike the EFSF, there is no “stepping out facility” in the ESM when members enter a programme of support. Therefore, Ireland will have to pay its share of the paid-in capital. The ESM is being established as an International Financial Institution and on that basis Ireland’s contribution will be treated as a financial transaction. This means that while it will impact on Ireland’s Exchequer Borrowing Requirement, it will not impact on its General Government Deficit. Ireland’s share of the €620 bn callable capital is based on the same key, i.e. 1.592% of €620 bn making our share of the callable capital €9.87 bn.

Following decision of the Eurogroup on 30 March 2012, the paid-in capital will be made available more quickly than initially foreseen in the original ESM Treaty. Two tranches of capital will be paid in 2012, a first one in July, a second one by October. Another two tranches will be paid in 2013 and a final tranche in the first half of 2014.

The following additional information was provided under Standing Order 40A

As noted in the reply already provided, the paid in capital contribution to the ESM is treated as a financial transaction for general government accounting purposes. This means that while the paid in capital contributions envisaged for 2012, 2013 and 2014 will impact on the Exchequer balance in those three years, it will not impact on the general government deficit figure.

Our current EU/IMF programme of financial support runs until the end of 2013. It provides funding to support all Exchequer requirements arising in that time, including the ESM paid in capital contributions.

These contributions were not explicitly envisaged at the time the programme was agreed in 2010 as discussions on the ESM had not progressed at that stage.

In relation to the callable capital, Ireland's share is based on the Irish ECB capital contribution key of 1.592% and amounts to €9.87 billion. This amount is not included in any budget [357]provision or projection of our deficit targets and accordingly is not taken into account in our financing requirements under the programme. This is because the callable capital will only be required in the event that the ESM incurs losses of a magnitude which would necessitate a call of the unpaid or callable capital. The ESM treaty sets out the limited circumstances under which this could occur. In this context I would like to re-iterate that the ESM will fund any programme which it agrees to provide through borrowing on the financial markets to fund lending to programme countries. The capital base, both paid in and callable, provides the backing for the borrowing, but it will not be used to directly fund any programme.

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