European Central Bank Executive Board member Joerg Asmussen said banks in Ireland need to “substantially” reduce their reliance on central bank funds to restore the financial system to health.
“The current amount of liquidity support extended by the ECB and the Central Bank of Ireland needs to be substantially reduced over time,” Asmussen said at an event in Dublin today. “We expect that the Irish authorities and the banks are working hard to achieve this.”
Irish banks are tapping about 125 billion euros ($164 billion) in loans from the ECB and the country’s central bank, after the bursting of a property bubble led to the state receiving an international bailout in 2010. Ireland has been seeking help from its European partners since September to refinance about 30 billion euros of so-called promissory notes used to rescue former Anglo Irish Bank Corp. and Irish Nationwide Building Society.
Asmussen said any proposal to replace the promissory notes with a bond from Europe’s bailout fund would need to occur in conjunction with a reduction in borrowing from the central bank.
“It should improve the chances of both the state and the banks returning to market-based funding, and of the banks reducing their extraordinary reliance on the Eurosystem,” Asmussen said.
Any deviation from the original promissory notes agreement “should be considered very carefully indeed,” he added.
Asmussen said even though the so-called fiscal compact agreed by European leaders this year to improve budgetary coordination and surveillance “won’t suffice” in the long term, it is of the “utmost importance” that all euro members adopt it.