State will get only ‘portion of €30bn’

If the Government is successful in its attempts to get a bank debt recapitalisation from the ESM, then it is likely to get only a portion of the €30bn it has requested, according to a troika source.

The Government’s efforts to get a retrospective bank recapitalisation received a boost from the influential economic and monetary affairs committee from the European Parliament.

The committee has recommended that the ESM should reimburse the Government an amount of the national debt used to bail out the banking system.

Overall, the State pumped €64bn into the banking system since the start of the financial crisis in 2008. However, €34bn relates to Anglo Irish Bank and Irish Nationwide, which was dealt with through the restructuring of the promissory notes. There are no instruments among the ESM bailout funds to secure a recapitalisation of this debt.

Instead the Government is focused on the €30bn it ploughed into AIB, Bank of Ireland and Permanent TSB. The €60bn bank recapitalisation fund, which is part of the ESM, is set to become operational at the end of this year.

Finance Minister Michael Noonan has said the Government will pursue a commitment on a debt deal for Ireland made at the June 29, 2011 EU Summit.

The Government’s position that the tools available now to deal with bank failures, such as the bail-in of senior and junior bondholders, was not available to Ireland.

Consequently one-third of the entire national debt relates to the banking system.

A bank recapitalisation through the ESM would require political agreement among every eurozone member state.

However, a troika source has said that if there is a deal for Ireland, a number of factors would be taken into account.

“What would have happened if the Government had not introduced the guarantee of the banking system? Was there a quantum of debt outside that guarantee the could have alleviated the debt burden? Why was the information about the state of the banking system before the guarantee so incomplete?”

On that basis, the amount of debt that would be eligible for a recap is much smaller than €30bn, said the source.

The State has already made a €1bn profit on its €4.8bn investment in Bank of Ireland. It still owns a 99.8% stake in both AIB and Permanent TSB. The ESRI’s John FitzGerald has recommended that the Government hold onto the banks until they are profitable and then sell them.


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