Taoiseach Enda Kenny has conceded that a concrete agreement on investment into AIB and Bank of Ireland by the new European rescue fund is unlikely this year, amid increasing resistance by euro zone member states towards the move.

Dublin has consistently argued that the euro zone's rescue fund, the ESM, should be used to retrospectively directly recapitalise banks, which would allow the State to recoup some of the funds it put into AIB and Bank of Ireland.

But senior EU sources have said the prospect of retrospective direct recapitalisation of banks is becoming increasingly remote, amid strong opposition to the move in Brussels.

Speaking in Helsinki yesterday where he met Finnish prime minister Jyrki Katainen, the Taoiseach said the issue would be a matter of discussion and negotiation "towards the end of the year and into next year". "We are not in a position to give a date for delivery, that is an issue still up ahead of us in terms of negotiation and discussion."

Ireland had used its presidency of the Council of the European Union to work through the preconditions to such a step but the issue of "legacy debt is one for the future", he said.

While the ESM had not been expected to begin directly recapitalising banks until a new supervisory mechanism for Europe’s banks is up and running next year, a decision on whether the fund could be used “retroactively” was expected to be agreed at a meeting of euro zone finance ministers later this month. The meeting will be the final euro zone finance ministers’ meeting of the Irish presidency.

However, EU sources say an imminent decision on the principle of retroactivity is increasingly unlikely, in part due to a joint Franco-German document published last week which called on the operational criteria for the ESM to be finalised in tandem with other banking directives, potentially delaying any decision. Mr Katainen said yesterday while the direct recapitalisation issue would be on the agenda for June, he was "not sure we can decide anything precise".

Commitment
Direct recapitalisation of banks by the ESM was one of the cornerstones of the commitment by EU leaders at last June's summit to break the link between sovereign and banking debt. But a year after the commitment, political agreement on how the fund's direct recapitalisation instrument should operate has remained elusive.

Mr Kenny said yesterday the June summit’s conclusions were “clear, unequivocal and have not changed”.

Finland, along with Germany and the Netherlands, has been one of the strongest opponents of the principle of retroactivity, arguing in a joint statement last September that legacy assets should not be included in the ESM's remit.

Mr Katainen said his government’s reluctance to rush into bank recapitalisation, a position shared by Berlin and other capitals, was not directed personally at Dublin.

Finland was concerned, he said, by the consequences of allowing the ESM bailout fund to recapitalise bank legacy assets before knowing how much public money for EU banks would be required.