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22 Nov 2010 14:49
Ireland’s banks will be pruned down, merged or sold as part of a massive European Union (EU)-International Monetary Fund (IMF) bail out taking shape, the government said on Monday as a shell shocked nation came to grips with its failure to protect and revive its banks under its own powers.
Finance Minister Brian Lenihan said Ireland’s banks have become wholly dependent on loans from the European Central Bank and look likely to be frozen out of normal credit markets for at least a year.
He stressed that Ireland had no plans to force senior bondholders of Ireland’s five state-supported banks to absorb losses, as German Chancellor Angela Merkel said would eventually start to happen when new EU crisis-management rules are enacted in 2013.
“We’ve always acknowledged as a sovereign state that we pay our senior debt. I’ve not seen any push to have senior debt dishonored,” he said.
Lenihan reiterated that the loan—requested on Sunday after weeks of Irish denials that it needed any aid—won’t exceed 100-billion euros.
But he said the headline figure would become clear only after another week or two of negotiations in Dublin involving experts from the Washington-based IMF, the Brussels-based European Commission and the Frankfurt-based ECB.
Ireland’s finance chief said he agreed with European colleagues that the Dublin banks—which borrowed money aggressively and pumped it into runaway Irish, British and American property markets for a decade—needed to be cut down to size and refocused purely on supporting Irish savers, home owners and businesses.
“Because of the huge risks they (Irish banks) took earlier this decade, they became a huge risk not only to this state but to the eurozone as a whole,” he said.
‘We cannot afford to leave on single country alone’
In Brussels, EU monetary commissioner Olli Rehn said the aid negotiations with Irish government departments, agencies and banks, which began on Thursday, can reach a conclusion by the end of November.
EU foreign ministers gathering for their monthly Brussels meeting said they had no real choice but to help Ireland stabilise its banks and cope with its mounting debts because, just like Greece in May, the 16-nation eurozone cannot allow one of its members to default.
“We are all in a very diffcult financial situation,” said Finnish Foreign Minister Alexander Stubb. “We are in this boat together and we will find a solution to this crisis together. And the reason is very simple—we cannot afford to leave one single country alone.”
Lenihan said Ireland still has more than €20-billion in own cash reserves and hopes it can emulate South Korea, which got an IMF bail out in 1997 and returned to borrowing from open markets a year later.
“We’re not bust. We have substantial cash reserves and the EU recognise that,” he told Irish state broadcasters RTE. He emphasised that Ireland hoped to keep as much of the EU-IMF loans on deposit as possible, because that could encourage normal lending at lower rates to resume sooner rather than later.
The IMF-EU fund taking shape would “demonstrate that ireland has facilities available to it to enable it to go to the market ... that Ireland has a last resort”, he said.—Sapa-AP
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