Ireland's Finance Minister has denied reneging on election commitments to force major European bank lenders to take a hit on losses.
Michael Noonan said the Fine Gael-Labour Government was under intense pressure from the European Central Bank to shield senior bondholders, lenders first in the queue to be repaid, from sharing the pain.
Ireland is about to pump another 24 billion euro into the failing banks to keep them afloat and plans to shrink the sector from six homegrown lenders to two so-called pillar banks.
"We haven't broken our word," Mr Noonan insisted. "We always said in the election that anything we did was under the umbrella of the European agencies and in consultation with the Central Bank in Frankfurt."
The multibillion-euro bailout marks the fifth attempt at putting money into the state banking sector, bringing the total bailout cash to half the value of the entire economy: a staggering 70 billion euro. It follows the results of long-awaited stress tests to examine whether the banks have enough cash to withstand another downturn.
Under the Government's restructuring plan of the sector, Allied Irish Banks (AIB) and EBS Building Society will merge to form one banking "pillar", while Bank of Ireland will form the second.
Shares in Bank of Ireland and AIB jumped when stock markets opened but Irish Life & Permanent stocks plunged by more than 50% because of its plan to sell off its lucrative insurance wing. International investors were still sceptical that the moves could fix the Irish banking crisis, the costliest in history.
Ratings agency Fitch warned Ireland was being put on watch for a downgrade, while Standard & Poor's lowered its long-term credit rating from A- to BBB+, making it more expensive to borrow money if Ireland was in the markets.
Under the latest recapitalisation plan, Mr Noonan has signalled that Bank of Ireland and AIB junior bondholders should be hit for 5 to 6 billion euro but the senior bondholders, institutional investors at the top end of the scale, will not be forced to take a hit.
Mr Noonan, who took office less than a month ago, said the Government could not persuade the European Central Bank to support burden sharing. "We always said we wanted burden sharing. But we would not do it unilaterally," Mr Noonan said. "We would only do it with the agreement of Frankfurt and we didn't get the agreement."