THE Government is hoping that the French banking crisis could pave the way for Europe's bailout fund to take over the State's stakes in AIB and Irish Life & Permanent, potentially cutting the national debt by more than €20bn.
But sources in Europe last night gave a cool reaction to the Irish aspirations, saying that the Irish banks' bailout had been "dealt with" already and seemed unlikely to be re-opened.
Sources in Ireland also stressed that any proposals are at a "very early" stage. It is understood that the Government has not yet talked to the banks themselves or taken detailed advice on the proposals.
The general concept is for the European Financial Stability Facility (EFSF) to take over the Government's €20bn investment in AIB and its €2.7bn investment in Irish Life & Permanent, so the fund would essentially replace the taxpayer on the institutions' share register.
Ireland's national debt would be reduced by whatever amount the EFSF paid for the stakes, and the country's annual interest bill would fall to reflect the lower borrowings.
The deal is seen as theoretically possible by Irish officials in light of increasing speculation that the French banking crisis will lead to France's banks being bailed out directly by the EFSF.
In that instance, Ireland could argue it was entitled to the same treatment as France's banks.
European sources yesterday stressed there is no acceptance at this point the EFSF would be used to bailout France's banks. "We're not there yet," one said.
The source added that the issue of Irish banks had already been dealt with and that it would be "technically difficult" to re-open the bailouts and reconstitute them.
Other sources pointed out that the EFSF would make new problems its main priority, rather than re-opening ones that had already been solved, adding that Ireland appeared out of touch with the European situation.
A spokesman for the European Commission's economics chief Olli Rehn yesterday declined to comment on the Irish hopes, but said bank recapitalisations generally would be discussed at this weekend's crunch talks of European leaders.
A spokesman for the Department of Finance declined to comment, but Taoiseach Enda Kenny yesterday told the Dail that Ireland is "constantly" seeking to move the "agenda" to achieve a reduction in the country's debt burden.
Finance Minister Michael Noonan has previously confirmed that the Government will seek to have the EFSF refinance the €30m of IOUs that were issued to Anglo and Irish Nationwide for their bailouts.