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6th Jun 2020

States can force bank recapitalisation, EU court says

  • (Photo: bundesbank.de)

An EU state can take shares in a bank against shareholders' consent when the country's and the EU's financial stability is at stake, the European Court of Justice ruled on Tuesday (8 November).

The court ruled in favour of the Irish government, which in 2011 recapitalised the Irish Life and Permanent Group (ILPG) bank by pumping in €2.7 billion, thus taking a 99.2 percent share in the bank.

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The government later injected another €1.3 billion in the bank.

The government acted through a direction order obtained in court to bypass the opposition of ILPG's shareholders, who later took the case to the Irish High Court and then to the ECJ.


"The direction order was the only means of ensuring the recapitalisation of ILP that was necessary to prevent the failure of that financial institution and thereby to forestall a serious threat to the financial stability of the EU," the judges argued.

At the time of the near takeover of ILPG by the Irish state, Ireland was under an €85-billion international bailout plan launched in December 2010 to prevent the collapse of the banking system.

Although there was a "clear public interest in ensuring a strong and consistent protection of shareholders and creditors," the judges said, "that interest cannot be held to prevail in all circumstances over the public interest in ensuring the stability of the financial system established by the EU treaties".

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The German Constitutional court ordered the European Central Bank to explain its 2015 bond-buying scheme that helped eurozone stay afloat - otherwise the German Bundesbank will not be allowed to take part.

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