German Finance Minister Wolfgang Schaeuble, center, the Finance Minister of the Netherlands, Jan Kees de Jager, right, and the Finance Minister of Finland, Jutta Urpilainen.

German Finance Minister Wolfgang Schaeuble, center, the Finance Minister of the Netherlands, Jan Kees de Jager, right, and the Finance Minister of Finland, Jutta Urpilainen.

THE MINISTERS OF Finance of Germany, Finland and the Netherlands have delivered a massive blow to the Irish Government’s hopes of securing a deal to reduce the impact of its bank debt.

In a statement issued last night, German Finance Minister Wolfgang Schaeuble, the Finance Minister of the Netherlands, Jan Kees de Jager and the Finance Minister of Finland, Jutta Urpilainen suggested that the EU’s rescue fund, once established, will only deal with future problems.

“The ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities,” they said following a meeting in Helsinki.

The message appears as a contradiction to what Ireland’s Finance Minister Michael Noonan understood from last June’s summit after which the Government’s hopes that the European Stability Mechanism would ease the burden of the country’s bank debt.

After that gathering, it was implied that there would be a separation of sovereign and bank debt with the main summit statement beginning:

We affirm that it is imperative to break the vicious circle between banks and sovereigns.

Earlier this month, Noonan had said he had received “very strong support at political level” at an informal meeting of eurozone finance ministers in Cyprus to make the country’s debt more sustainable.

Schaeuble, Kees de Jager and Urpilainen also said that the block should work off the principle that the ESM should be used as a last resort – only when other options, including private capital and national public capital have been exhausted.

“…direct bank recapitalisation by the ESM should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the ESM.”

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The details of the statement from the three ministers has been somewhat downplayed by the Department of Finance. In a statement issued this morning, it said that technical discussions in line with the June summit mandate remain ongoing about how the sustainability of the Irish financial system can be improved.

“The Heads of State and Government agreed on the 29 June to break link between banks and sovereign,” it added. “This was a very important and decisive decision taken by the An Taoiseach and 16 other Heads of State and Government and work will continue to deliver on this decision.”

We agree on the need to achieve rapid progress on the EU agenda, including on the single supervisory mechanism. We welcome their ideas on how to give effect to the decision of eurozone leaders that the ESM should have the capacity to recapitalise banks directly, following the establishment of an effective single supervisory mechanism. These ideas will feed into our discussions in the Eurogroup and at Heads of State level over the coming months.

It also welcomed the recognition from the three ministers about the recent positive review of the Irish programme.

The full statement from the three ministers: