ANGELA Merkel has left the Government in panic mode after suggesting a deal cannot be done to recapitalise our banks with European money.
Taoiseach Enda Kenny and Finance Minister Michael Noonan were trying to reassure the country last night that a June agreement still stands despite the German Chancellor's suggestion to the contrary.
Ms Merkel stunned the Government by stating that money from the European Stability Mechanism cannot be used retrospectively to help banks.
"There will not be any back-dated direct recapitalisation of Eurozone banks," she said.
"If recapitalisation is possible, it will only be possible for the future."
However the Government here said that she was merely referring to the situation in Spain.
After initially hailing the latest two-day summit of EU leaders in Brussels as a success, sources say Mr Kenny was left reeling by Ms Merkel's comments.
A Government spokesperson said: "We understand that Chancellor Merkel was asked a direct question about the recapitalisation of Spanish banks and she replied in that context."
Minister for Finance Michael Noonan said the Government would seek to clarify the comments with Berlin today having previously received different feedback from Merkel regarding Ireland's decision.
"The next phase now is that the (European) finance ministers will work out the criteria and within the criteria will be whether it will be retrospective with respect for Ireland."