Strategic bank to stay on Government balance sheet, Eurostat says

A decision by Eurostat that the new strategic banking corporation should not be taken off the Government balance sheet may have implications for the status of Irish Water.

The EU statistical office has responsibility for deciding the status of agencies created by the State. Specifically, Eurostat decides whether or not they can be considered as stand-alone entities that are not included in the general Government balance. The effect of inclusion is that it increases the Government deficit.

At Wednesday night's Cabinet meeting, Minister for Finance Michael Noonan informed colleagues that the Strategic Banking Corporation of Ireland - established to provide an additional financial support option to businesses - has been classified by Eurostat as a captive financial institution.

The ruling comes despite the wish of the Government, and the recommendation of the Central Statistic Office, that it be kept off balance sheet.

A Government spokesman has said the impact of this ruling on the deficit and the general Government balance would be “negligible”.

It was accepted, nevertheless, that the Eurostat determination has come despite the wishes of the Irish authorities that it be kept off balance sheet.

A decision buy Eurostat on the status of Irish Water will be made later this summer and published in early autumn.

Government sources have pointed out that the CSO has recommended Irish Water be kept off balance sheet and have consistently said Eurostat tends to follow its recommendations.

However, the Eurostat ruling that ran counter to the CSO recommendation might now raise fresh doubts as to whether Irish Water will succeed in the “market test” and be classified as a stand alone entity - the rule is that over half an entity’s revenue must come from sources other than central Government.

The spokesman said on Thursday that the Government was still confident that Irish Water would pass the market test.

To qualify as being off balance sheet, Eurostat has to agree that more than half of Irish Water’s revenue is commercial.

A decision that all Irish Water’s investment should remain on balance sheet in the years ahead would somewhat limit the room for manoeuvre in future budgets.

The Department of Finance pointed out last night that the strategic bank and Irish Water were classified as very different entities by Eurostat.

The bank was not a normal bank, said a spokesman, as it was seen as a policy instrument of the State, to further policies such as increasing funding to SMEs. Its losses would be borne by the State.

On the other hand, the spokesman said, the criteria for Irish Water were different. The Eurostat evaluation includes a market corporation test to determine if it is being propped up by the State or if it could be classified as a stand-alone entity.