UPDATE 2-EU agrees new Anglo Irish Bank aid, adds to budget risk

By Andras Gergely and Foo Yun Chee

DUBLIN/BRUSSELS, Aug 10 (Reuters) - Anglo Irish Bank won temporary clearance from the EU on Tuesday for a fresh bailout of up to 10 billion euros ($13.2 billion) from the Irish government, more than expected and putting further pressure on Ireland's bulging budget deficit.

Ireland's finance ministry said underlying budget trends remained in line with its targets but it acknowledged that an aid package given to Anglo Irish in March would probably increase the government deficit and so could the latest bailout.

The bank was nationalised last year after it was hit by deposit and loan scandals and a property market crash. The Irish government injected 4 billion euros in emergency capital into the bank last year and another 10.3 billion euros this year.

The EU's approval on Tuesday of a further 8.58 billion euro payment to cover the bank's capital needs this year was higher than 8 billion euros earmarked earlier.

The EU said the amount could increase to 10.05 billion euros depending on the price Anglo Irish gets for loans sold to the National Asset Management Agency (NAMA), Ireland's 'bad bank' scheme.

The 4 billion euro bailout in 2009 bank pushed the deficit up to 14 percent of gross domestic product last year, the biggest in Europe and way above a European Union ceiling of 3 percent. Analysts say the latest injection could push the budget shortfall above 20 percent this year.

Ireland's finance ministry said on Tuesday that 8.3 billion euros of capital given to Anglo Irish in March would 'in all probability' be added to budget deficit calculations. It said the accounting of a further 2 billion given in May and the 8.6 billion euros approved on Tuesday was still being examined.

'The underlying deficit is expected to be of the order of 11.5 percent of GDP in 2010, in line with the budget day target of stabilising the underlying deficit,' the finance ministry said in an e-mailed note, adding that its annual bond issuance plans were also unaffected by the latest bailout.



BAD BANK, GOOD BANK

The European Commission, the EU's competition regulator, said it approved the capital boost for the time being so that Anglo Irish could meet its obligations and until the Commission issues a final decision on the lender's restructuring plan.

'There is no doubt that Anglo Irish Bank has to restructure profoundly in a way that effectively tackles the weaknesses of the past business model and ensures a sustainable future without continued state support,' Competition Commissioner Joaquin Almunia said in a statement.

Anglo Chief Executive Mike Aynsley said last week the bank expected to agree 'in principle' with the Commission on a plan to split its remaining assets after NAMA transfers into a 'good' and a 'bad' bank of its own.

The exact impact of the bailout on Ireland's budget deficit remains unclear as the bailout funds to Anglo Irish are provided via an instrument called promissory notes, which means actual payments can be spread out over up to 15 years.

However, Ireland's central bank said last month the deficit could approach 19 percent of GDP this year including a bailout of Irish Nationwide Building Society, and could be even higher depending on how much Anglo Irish eventually needs this year.

(Additional reporting by Padraic Halpin and Marie-Louise Gumuchian in Dublin; Editing by Andrew Heavens) ($1=.7594 Euro) Keywords: ANGLOIRISHBANK EU/ ([e-mail]; tel [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.