AIB could be sold to EU rescue fund

Allied Irish Bank could be sold to the EU’s rescue fund under an agreement reached by eurozone finance ministers as part of a new scheme for winding up or rescuing banks.

They agreed to set aside €60bn from the €500bn European Stability Mechanism’s fund to recapitalise banks, in a plan to ensure taxpayers will not be left to pick up the tab in future.

The ministers, meeting in Luxembourg, also decided on a hierarchy of who should lose money first when an institution gets into trouble, and agreed not to touch the savings of those with €100,000 or less.

However, the taxpayer will still be on the hook for 20% of the cost before the ESM will contribute for the first two years of the scheme, and for 10% after that. For legacy assets, the member state will have to make up any shortfall of less than 4.5% before the ESM will step in.

Commissioner Olli Rehn said the aim was to “break the vicious circle between banks and sovereigns by diluting the link”.

Ireland and Greece have been lobbying for the fund to be retroactive, so they could claim back some of the money they put into their ailing banks — €32bn in total for Ireland.

Finance Minister Michael Noonan said the agreement offered the potential for retroactivity and this was the first time that it was set out in an official document.

However, when asked if he would now consider selling the Government’s shares in the banks to the ESM, he said: “We will consider what our position is, it is too soon to speculate on these things.”

Germany, the Netherlands, and a number of other countries were opposed to this idea, fearing it would open the floodgates and lead to Spain and others applying for funds also.

They agreed to a compromise that applications would be decided on a case-by-cases basis, but needing the unanimous agreement of the ESM board composed of representatives from each member state.

Asked why those who were opposed changed their minds, Mr Noonan said: “We have made a lot of friends during the Irish presidency and while people had differing views, the agreement was unanimous.”

However Ireland, or any other country, will have to wait until at least autumn 2014 when the scheme, known as the Single Resolution Mechanism, is functioning.

The IMF has said that Ireland would benefit from having this option while the reduction of interest rate on the EU loan and the extension of maturities by seven years, confirmed at the meeting, have all helped boost market confidence.

The State owns 99% of shares in AIB but the Government could be offered as little as €4bn.

It would be expected to put the money against the country’s debt.