Kenny calls for new EU cash to end bank crisis
> Portugal takes centre stage
> Bailout rate cut still on cards
THE Government now wants the EU to provide billions of euro -- for up to five years -- to end the banking crisis once and for all.
It wants the ECB to allocate a massive amount of cash for years to give the banks vital breathing space to sort out their problems.
The existing EU/IMF bailout is designed to pump in money to deal with bad debts.
But the proposed new funding would be designed to provide day-to-day cash flow.
The Government is trying to convince EU colleagues the problem with the Irish banks is not just about pumping money into them so they have sufficient reserves -- but also about giving them enough to lend and generate profits on.
The measures being sought are aimed at bringing down the bill on the amount of money that has to be put into the banks.
At the moment our banks have to 'roll over' their loans from the ECB every two months or so. That means they are trying to work on a short-term basis and that has drained confidence in them. That in turn means fewer people are putting money into the banks.
To address this problem, the Government wants the ECB to put in the money for a longer period to reassure private depositors their money is safe.
"We are looking for certainty from the ECB on some sort of formula that will give greater confidence to the markets. Recapitalisation alone will not bring in funds to the Irish banks," a government source said.
Meanwhile, Taoiseach Enda Kenny remains confident of securing a 1pc reduction in the interest rate on the €85bn bailout package -- despite failing to secure the reduction at this week's EU summit.
This emerged as Ireland's problems were overshadowed by a fresh crisis caused by Portugal edging towards needing a bailout.
Mr Kenny is also kicking the bailout negotiations to touch until the full extent of the banking black hole is known and is holding out for a wider deal involving the banks.
The Government will also argue that if the results of the stress tests are worse than anticipated it will have to look at areas previously off limits, involving reducing the debt burden on the banks.
The Coalition would then examine the restructuring of a range of liabilities not covered by the state bank guarantee.
But the Government argues that if the bank's liquidity problem on a medium-term basis is addressed, then the necessity to engage in burden-sharing is reduced.
The restructuring of bank debts is a highly sensitive issue across Europe, with several countries opposed to the so-called burning of bondholders.
They are worried this will cause damage across the European banking system.
Despite his previous prediction a fortnight ago, Mr Kenny will not get a reduction in the interest rate on the EU bailout at a summit of European leaders today.
There is currently €35bn set aside in the bailout to pump into the banks, with some suggestions the Government may need even more money to shore up the system.
Although the stress tests are expected to reveal that the banking black hole is worse than anticipated, officials say the Coalition's plan is to draw down less rather than more money.
The Taoiseach said he prefers to wait for the banking stress test results before looking for changes to the EU/IMF deal.
He said he was waiting for the facts on the banking system to emerge in the stress tests to come next week and was more interested in substance than theory.
Mr Kenny's change in strategy came after he spoke with European Council President Herman Van Rompuy the previous day. The pair agreed to deal with the question after the results of the stress tests.
"I feel it is much more important to be absolutely clear about the extent of liability before we make any further discussions about negotiations," Mr Kenny said.
Portugal's prime minister resigned after a package of cutbacks was rejected by the parliament in Lisbon.