Lenihan hands Kenny €7bn bank nightmare
Fine Gael and Labour put on spot by 'election stroke' on IMF bailout
Published 10/02/2011 | 07:16
FINANCE Minister Brian Lenihan last night handed the next government the poisoned chalice of pumping another €7bn into our crisis-hit banks.
Fine Gael and Labour were dramatically put on the spot after Mr Lenihan got permission from the IMF to postpone the massive cash injection until March.
That means the most likely next coalition partners will be forced, under the strict IMF bailout plan, to inject billions into AIB, Bank of Ireland and EBS within days of taking office.
The next administration was faced with that stark reality just hours after Fine Gael said it would not give "another cent" to Anglo Irish Bank, although it did not mention the other banks that need cash. Mr Lenihan said Fine Gael "may have to eat their words".
Fine Gael admitted the €7bn funding would have to be injected in line with the EU-IMF deal.
But Labour could not give a clear indication of what it would do in the wake of the announcement.
Mr Lenihan explained his decision by claiming he no longer had a "mandate" to inject any more of taxpayers' cash into the banks.
Fine Gael's finance spokesman Michael Noonan accused Mr Lenihan of pulling a "typical Fianna Fail election stroke to avoid bad news in the last week of the election".
The decision to postpone the next banking injection from the original deadline of February 28 was sanctioned by the trio of international bodies bailing out the country.
The EU said that although the delay in pumping the money into AIB, EBS and Bank of Ireland did not "strictly speaking" constitute a breach of the bailout terms, a new government should immediately implement the cash injection.
"For us Ireland has the resources to proceed," a spokesman for the European Commission said.
"There should be no doubt in the markets -- it's important that it's clear Ireland has the resources."
Earlier yesterday the IMF -- one of the major players in the bailout -- warned that the banks "remain under stress''.
While the Washington-based organisation said Ireland was "on target'' to meet the economic goals in the plan, the country still had a long way to go to stabilise the banks.
It was the IMF's first progress report on the bailout. The organisation warned political instability was stopping Ireland from turning the corner.
Mr Lenihan claimed he delayed the decision because the Government did not have a majority mandate as he denied it was linked to the election.
"I think you have to respect the mandate you have. The Green Party withdrew from the Government. The Government did not have majority support. We did put the Finance Bill through but that's where it stopped," he said.
But Mr Noonan said: "I cannot understand how the minister who has insisted now for months that no element of the bailout plan is renegotiable can unilaterally resile from a condition written in that the banks have to be taken to 12pc tier-capital ratio by the end of February," he said.
Under the original terms of the bailout plan, the Government was due to put €4.7bn into AIB at the end of February, along with €1.4bn into Bank of Ireland and €438m into EBS.
Banks had been repeatedly told that the deadline could not be moved, but Mr Lenihan yesterday announced he had secured an "extension" so the matter could be dealt with after the election.
Mr Lenihan claimed the move, which took the opposition parties completely by surprise, was taken in light of the major differences between political parties on how the banking crisis should be handled.
The outgoing Finance Minister stressed the new government would have to tackle the issue "as soon as possible".
Financial sources last night said the new government had little chance of convincing the international community that Ireland's banks did not need the extra €7bn.
But the development may help keep Bank of Ireland out of state ownership, since the new government may be able to give the bank more time to raise private cash.
The next administration is also hoping to be able to impose "burden sharing" on investors who loaned money to banks, potentially reducing the bill for the State.