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Michael Noonan speaking to the media this morning
Retrospective recapitalisation

Noonan: Taxpayers put lots of money into BOI and AIB, now we could get some back

Michael Noonan has explained the significance of last night’s agreement between eurozone finance ministers about the potential retrospective recapitalisation of Ireland’s banks.

FINANCE MINISTER MICHAEL Noonan has said that the inclusion of a provision to consider the retrospective recapitalisation of eurozone banks on a case-by-case basis could mean Irish taxpayers recoup some of the cost of bailing out the banks.

Noonan was speaking this morning after eurozone finance ministers last night moved closer towards a banking union and the use of the European Stability Mechanism (ESM), a €500 billion permanent bailout fund.

Strict conditions are attached to the use of the fund – which won’t be active until there is a full banking union – including that the ESM is limited to givng out €60 billion in all to lenders and that any member state seeking aid must have, as a minimum, a 4.5 per cent capital buffer.

Crucial for Ireland is seeking to recoup some of the cost of its exceptional decision to bailout its own banks to the tune of €64 billion five years ago including pumping some €25 billion into Bank of Ireland and Allied Irish Banks.

Last night finance ministers agreed to the following statement: “The potential retroactive application of the instrument should be decided on a case-by-case basis and by mutual agreement.”

This means that Ireland could potentially apply to use the ESM to retrospectively recapitalise its banks and recoup some of the cost to the taxpayer of bailing out institutions like AIB and BOI.

Noonan explained this morning: “The Irish taxpayer put a lot of money into Bank of Ireland and AIB, there is a possibility now that in the future some arrangement could be arrived at where we would retrieve some of that money through the use of ESM.”

It’s complicated

However he warned that the ESM is a “complicated structure” with much work still to do before the bailout fund can be used in a practical way.

“There is a whole lot of empowerment of the ESM to set up subsidiaries and subsidiaries of subsidiaries and to use private money, private sector money to leverage up the amounts available,” he said.

Noonan also claimed that both banks would be in profit next year and that in a growing economy this made them more attractive to potential purchasers. This, Noonan said, raised the possibility that Ireland would not “go down the ESM route”.

“This is the first occasion in which the European Unuon and the eurogroup have written the issue of retrospecton into a legal document. Up to now it was communiques and press statements and assurances between leaders,” he said.

“Now its part of the legal framework but, as I say, I don’t want to tie the future of the banks or of the Irish banking system solely to the ESM”.

Noonan is chairing a meeting of the EU’s finance ministers in Luxembourg today, the last occasion on which this will happen before Ireland’s EU presidency draws to a close.

The Finance Minister said he expects a long meeting in which there will be a formal and legal endorsement of the extension of a portion of Ireland and Portugal’s bailout loans as well as an endorsement of an EU VAT fraud initiative.

VAT fraud costs Europe “literally billions if not trillions” of euro, Noonan claimed.

Read: Euro finance ministers agree direct help for banks

Noonan: Ireland will escape bailout, even if we can’t recover bank costs

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