The Government has thrown €11bn at AIB, Anglo Irish Bank and Bank of Ireland (BoI) so far this year. These banks must now convince the European Commission that they deserve the money. The omens that emerged from Britain last week weren't encouraging. The commission forced the rescued British bank Royal Bank of Scotland (which owns Ulster Bank) to sell its valuable insurance divisions and 318 Williams & Glyn branches. Shares in AIB and BoI slumped amid fears the EU could adopt a similar approach here. Just days earlier, AIB chairman Dan O'Connor warned AIB could face "serious consequences" from its talks with the commission.

There's a good chance, however, the EU will allow the Irish banks off scot-free, with the only losers being the taxpayers who bailed them out.

"The whole emphasis from the EU is about creating a level playing field," says Ciaran Callaghan, bank analyst with NCB. "But Ireland is a bit of an exceptional case. The foreign banks are retrenching from Irish shores and they're not writing new loans here.

"You therefore don't have the credit availability that you had pre-boom. We believe that AIB and BoI are writing 80 per cent of new mortgages in Ireland today -- pre-boom, it was less than 40 per cent. The European Commission can't slap AIB and BoI on the wrist for that (over competition concerns) -- if AIB and BoI don't lend, no-one will. The economy relies on credit to kick start it."

The offshoot would be a severely uncompetitive Irish banking sector -- dominated by AIB and BoI, with free rein to increase the cost of loans for borrowers -- less inclined to offer the bumper savings rates once paid to attract savers away from rivals.

In the words of one senior banking figure, who did not wish to be named, the withdrawal of foreign banks from Ireland has set banking "back a decade": "If you have less choice and competition in the market, pricing does go up."

"The credit freeze and dogged state of the Irish economy have also tied the hands of the commission. Even if the EU ordered AIB or BoI to sell off some of their Irish branches, buyers would be hard to find."

"There are a lot of loan assets and bank assets out there that people want to sell so they can reduce the size of their loan books -- and because they are funding many of these bank assets through wholesale funding," said Oliver Gilvarry, head of research with Dolmen Securities. "The credit freeze has made it hard to sell these assets, particularly as Ireland has highly indebted consumers and will lag in its recovery. If you had AIB or BoI trying to offload some of their branches, is the market big enough for that? We are facing a very difficult economy -- is someone willing to take on another bank's loan book and grow it aggressively?"

The foreign assets of AIB and BoI could be targeted by the EU. AIB could be forced to sell M&T Bank in the US or its Polish subsidiary, Bank Zachodni WBK. AIB could make €2bn by selling both, according to Callaghan. "From an Irish perspective, selling AIB's foreign assets won't do anything for competition here and will not get liquidity going," he said.

BoI could be forced to sell its €32bn British mortgage book as well as its €5bn of lending to the maritime, media and film sectors. This wouldn't hit the bank too hard. "Bank of Ireland is not writing any new mortgage loans in Britain. Its long-term strategy is to retrench out of Britain," says Callaghan

One Irish analyst, who did not wish to be named, said: "There isn't much that Europe can do that the Irish banks weren't doing already. BoI is already shrinking back to its core franchises. The EU has allowed the Belgian bank KBC to keep its core operations in Eastern Europe. So it's unlikely that AIB will be told to sell off M&T."

So what was O'Connor talking about when he warned about "serious consequences" from the EU? Perhaps he's afraid the EU may force AIB and BoI to repay the state aid given under the recapitalisation plan ahead of the five-year deadline. That would lead to pay and promotion freezes, wage cuts, and an inability to replace staff. But many believe the EU is unlikely to bring forward the deadline. However, the days of Anglo, which last week announced plans to cut 430 jobs over the next two years, appear to be numbered.

Independent banking expert Peter Mathews, who has worked with ICC Bank, said: "Anglo will be run down. It's a shell of a bank. It has to forget about ever being set up again." Job losses are unlikely to be restricted to Anglo. "There will certainly be more job losses if Nama goes ahead as it will create a swamp," said Mathews. It seems the banks will get an easy ride from Europe, but more Irish workers will lose their jobs, and consumers will be lumbered with more expensive loans and a poor choice of banks. This crisis has set us back more than a decade.