Noonan insists €2bn cuts won’t be needed

Finance Minister Michael Noonan is adamant he does not have to cut €2bn from the budget, while the EU opened a glimmer of hope Ireland could get retrospective bank recapitalisation. But Mr Noonan would not say if his budget would leave more money for services, or mean tax cuts for some.

All the EU required was he stick to the timeframe of cutting the deficit to less than 3% of GDP next year. But while the figures in April indicated this would need a budget cut of €2bn, the latest data was better and he would need less to reach the target.

President of the Eurogroup, Jeroen Dijsselbloem, appeared to contradict a senior EU expert when he said that using the EU’s rescue fund to recapitalise Irish banks retrospectively was technically but not politically possible.

He pointed out the fund for banks will be capped at €6bn and that the new procedure needed to be approved by the European Parliament first. “Then we will see if there are any realistic requests from member states to use the instrument [ESM]”, he said.

Another banking source suggested that his remarks were more applicable to the aftermath of the stress tests under way in the Irish and other EU banks to discover if they were properly capitalised.

If one of the Irish banks needed more capital, and it was unable to raise it from bondholders or the markets, then the Government could apply for it to the ESM and given the size of the country’s debt, would most likely be eligible.

However, given the amount of state funding already put into Irish banks and the fact that they have been so heavily supervised over the past three years, it is thought they are unlikely to need additional capital.

Mr Noonan said that Bank of Ireland had already returned more than the taxpayer put in and the state retains its 14% shareholding. He was also hopeful that there would be an equally positive return from Allied Irish Bank and he welcomed the fact that they made a profit in this first quarter of this year.