Minister for Finance Michael Noonan has confirmed that the Government is no longer seeking euro zone support for AIB and Bank of Ireland.

The idea that the euro area’s rescue fund could recapitalise the two banks that were bailed out by the Irish tax payer at the height of the financial crisis, has quietly slipped off the political agenda in recent months.

But Mr Noonan’s comments this week were the first public confirmation by the Government that the matter was not being pursued.

Sinn Féin MEP Matt Carthy strongly criticised the move, accusing the last government of missing "a vital opportunity to relieve the debt burden from the backs of the Irish people" and criticising the incoming Government for not "putting up a fight for the interests of Irish people".

With the bank bailout costing the Irish State €64 billion, has the Government simply quietly abandoned the quest for direct bank recapitalisation? The idea of directly recapitalising the two pillar banks from European funds emerged during the Irish bailout as a key way Ireland could recoup some of the billions it put into the banks.

The ESM (European Stability Mechanism), is the euro zone's bailout fund that manages the disbursal and repayment of the euro zone loans that were given to Ireland, Portugal, Greece, Spain and Cyprus by the other members of the single currency area during the euro zone debt crisis.

As officials in Brussels drew up plans for a euro-wide "banking union" in the wake of the crisis, one of the key building blocks of the scheme was the idea of creating a new direct recapitalisation instrument within the ESM which would inject money into failing banks.

The theory was that such a fund would break the link between sovereign and banking debt which had been exposed so spectacularly in the Irish bank bailout.

Specific needs

In a key concession to Ireland, at an EU summit in June 2012, EU leaders agreed to consider the specific needs of Ireland.

Irish officials, and Taoiseach Enda Kenny, argued persuasively at the time that new EU laws that would oblige creditors to be bailed-in the event of a bank collapse had not been available to Ireland during its bank bailout.

As a result, they argued, Ireland should be allowed to tap the ESM fund “retroactively” to allow the ESM fund to take a stake in AIB , which had cost the taxpayer €21 billion, and Bank of Ireland which received a €4.7 billion government bailout.

Over the next year, Ireland’s quest to seek retroactive direct recapitalisation continued as preparatory work establishing the new instrument took place – the ESM was not due to become operational until the banking union’s Single Supervisory Mechanism (SSM) was established.

By the end of 2014, the SSM was up and running and the ESM Direct Recapitalisation Instrument had entered into force. Yet there has been no application by the government to seek the instrument.

Value

Various statements by Mr Noonan suggested that the government no longer was seeking this option. The government’s argument was that, as the value of Bank of Ireland and AIB increased, the option no longer made sense.

ESM direct recapitalisation would have involved the ESM fund taking a direct stake in the banks. With the value of the banks increasing, it made more sense for the Government to retain its stake or sell its shareholding on the open market.

But while this argument has logic, there were also political reasons. In reality, the political appetite to give Ireland further debt relief was non-existent. Ireland was perceived to have been given enough concessions . Ireland’s strong economic performance and clean exit from the bailout in December 2013 lessened the case for direct bank recapitalisation .

While Mr Noonan’s comments this week have put the new Government’s stance on ESM direct recapitalisation case on the record, questions remain about why the government pursued so vigorously for so long an initiative that, by its own reckoning, did not add up.