Republic of Ireland paves way for EU bank funding but blocks bailout
The Republic's Finance Minister Brian Lenihan last night agreed to pave the way for emergency EU funding for the banks -- but fended off an overall bailout for the country.
And Mr Lenihan has admitted for the first time the Irish banks may need billions more of capital pumped into them.
The Irish government is to enter formal "short and focused" talks on the problem with the Irish banks with the European Commission, the European Central Bank and the International Monetary Fund.
Speaking in Brussels, Mr Lenihan said extra capital for the banks is among issues to be looked at by an IMF/ECB/EU Commission team, which is coming to Dublin with talks beginning later this week.
A top-level team from all three organisations is due in Dublin -- possibly today -- to scrutinise the banks' books.
The technical talks will focus on "restructuring of the banking sector" and it will be up to the Irish Government to decide to apply for funding at the end of the negotiations.
He was speaking after staving off an overall bailout for the Irish economy, but the ECB/IMF/EU team will be coming to Ireland to "find out the facts on the ground,'' admitted Mr Lenihan.
"I'm sure all these questions will be gone into, all these issues will be examined,'' he told the Irish Independent when asked about fresh cash for the banks.
"It's important now this group get down to the practicitalities,'' he said.
"Talks begin this week,'' said Mr Lenihan. "Full confidence has been established in our budgetary policy'' he said and his EU partners had recognised his "mandate'' from the Irish Government.
EU officials said it was "premature" to say how much money would be put into the banks.
However, they fired a warning shot about our finances by forcing the Government to put an annual review into its four-year budgetary plan in case there is a further deterioration.
European finance ministers heaped unprecedented pressure on Mr Lenihan over the Government's dire finances, with Ireland's main support coming from France and Finland. But European leaders continue to believe a bailout for the "troubled banking sector" in Ireland will be required.
European Commissioner Olli Rehn welcomed the efforts the Irish Government is taking to address its problems -- but still indicated a banking bailout was on the way.
"The Irish Government is committed to working with the Commission, the ECB and the IMF to determine the best way to provide any necessary support to address market risks, particularly as regards the troubled banking sector," he said.
"This can be regarded as intensification of a potential programme in case it is requested and deemed necessary," he added.
The Commissioner for Economic and Monetary Affairs said the problems in the banking sector were "spilling over to the sovereign".
French Finance Minister Christine Lagarde said it may be a question of days before a financial plan for Ireland is agreed.
While the Irish government was prepared to accept various measures to deal with a crisis in bank funding, Mr Lenihan went into last night's meeting opposing a wider bailout of the entire economy.
A national bailout would have involved the European bailout fund providing a loan which could keep Ireland out of the markets for between two and three years, giving it time to bring the deficit under control.
The Irish government doesn't believe this is necessary and certainly not before the budget and four-year plan are published. Mr Lenihan was facing powerful figures like Jean Claude Trichet, the ECB president and also Klaus Regling, head of the European stabilisation fund.
Also present were the Spanish and Portugese finance ministers, who have said in recent days Ireland may need to consider a full-scale rescue.
Various proposals were tabled about solving the banking problem yesterday. One was for the Irish Government to borrow from the stabilisation fund and then to pump this money into the banks, giving them an additional layer of protection against losses on soured loans.
This idea of "over capitalising" the banks has been discussed at the European Central Bank, it is understood.
Another idea that was believed to be discussed was a short-term European guarantee of Ireland's bank debts, but this is likely to run into opposition from other countries who would want a similar guarantee.
The European guarantee would supplement the existing guarantees from the Irish government.
Sources said while short-term solutions could be agreed, the markets wanted to see long term plans that stave off any possible default by a eurozone member.