Belfast Telegraph

Bodies may block use of bailout cash

By Laura Noonan

The Irish government may run into resistance from the European authorities and the International Monetary Fund with its plan to use the billions left over from the banking bailout to fund the Republic's exchequer.

The coalition has not yet secured permission for the scheme, several weeks after it first floated the idea of using some of the €35bn (£31bn) originally ear-marked for the banks to fund general state spending beyond 2012.

The measure has not yet been formally put to the so-called troika (EU/ECB/IMF) overseeing Ireland's bailout, and it may meet opposition from some of those authorities who don't want to see the banking kitty emptied.

Some elements of the troika are also holding out hope that some of the "spare" banking bailout money could be used to replace the promissory notes (government IOUs) given to Anglo Irish Bank and Irish Nationwide.

The €85bn bailout initially set aside €35bn (£31bn) for the banks, including a €25bn (£22bn) "contingency fund" designed to reassure the markets that there was more available in the unlikely event that the banks need to be bailed out again in the future.

The stress tests, which have been well received as modelling a credible 'worst case' scenario, only call for about €19bn of state money to be put into the banks this summer, leaving €16bn unused.

Some sources in the troika feel that even though a future banking bailout is unlikely, it would be unwise to exhaust all remaining funds on state spending.

"We have not discussed this yet," said one source. "But it is good for the market to know that there is a backstop still available for any future losses."

Parts of the troika are also holding out hope that some of the "spare" banking bailout money could be used to pay down the billions of promissory notes.

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