Deal puts pressure on Cowen to shore up banks
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THE Government is now under huge pressure to put taxpayers' money into struggling banks after EU leaders last night pledged to take action to avert financial collapse.
Taoiseach Brian Cowen called it "a mandate for decisive action by all of the eurozone member states".
Significantly, he did not rule out injecting capital into the banks after European leaders agreed to do whatever is needed to save their banking system.
But the Government desperately wants to avoid going down this route, feeling the €500bn State guarantee should be enough to get the banks out of their present difficulties. The Government last night received confirmation that its State guarantee is in line with European competition laws. In a telephone call to Taoiseach Brian Cowen, European Commission president Jose Manuel Barroso said the commission approves of the deal.
The Government will now proceed with publishing the details of the banks scheme at some point this week, but the exact timeframe for when it will be put before the Dail is complicated by tomorrow's Budget.
Earlier yesterday, European leaders were rushing to craft a credible package before fearful world markets reopened. They agreed it was right to pump public money into banks battered by the worst financial crisis since the 1930s.
National governments can now implement a range of options if they wish, beyond the Irish Government's State guarantee for loans and deposits.
Mr Cowen said the leaders of countries using the euro, alongside Britain, had agreed to a "toolbox for future action".
British Prime Minister Gordon Brown was last night claiming credit for the initiative, saying it included his three elements of boosting banks' liquidity, providing lending in the medium term and offering the potential for recapitalisation of the banks.
The key parts of the plan are the commitments to provide capital and insure or directly buy into new debt issues.
Unfreeze
The leaders pledged to help, or directly subscribe to, debt-raising by banks for periods of up to five years, to complement the efforts of the European Central Bank to unfreeze inter-bank lending markets.
The EU also agreed to put in place guarantee cover for the European Central Bank to set up a mechanism for lending to large companies.
The Taoiseach said the European Commission was now expected to come back tomorrow with its views on his State guarantee scheme.
"It is a mandate for decisive action by all of the eurozone member states. We have already taken decisive action on September 29 and there is a recognition and acceptance that Ireland has done that and we are finalising our arrangements on it," he said.
Stabilisation
Mr Cowen said the new EU plan did not the State guarantee for banks two weeks ago, which had provided stabilisation. But he did not rule out an injection of hard cash into the banks. He said the question of what other steps were to be taken depend on the circumstances.
"Obviously I have never ruled anything out and I have never ruled anything in. We concentrated on what was at hand.
"What was at hand was a guarantee scheme, what was subsequently provided was legislation, that was brought to the House and enacted.
"What was subsequent to that is the guarantee scheme being finalised with the Commission. We will be receiving it tomorrow, we hope.
"And that will then provide us with the full framework for that aspect of the response we have taken.
"For the future, I can't speculate. I don't think it is helpful only to say we have provided some time and space to deal with the situation."
The Irish Government would have preferred the commitment to putting in capital to have been more vague, rather than the final text which said Government's "will make available capital", either through buying shares or preferential shares.
The declaration of action by euro area countries said: "So as to allow financial institutions to continue to ensure the proper financing of the eurozone economy, each Member State will make available to financial institutions Tier 1 capital, e.g. by acquitting preferred shares or other instruments including non-dilutive ones."
But Mr Cowen claimed the action provided for the declaration was not mandatory.
"You use them if they are required in a particular set of circumstances," he said.
- Fionnan Sheahan Political Editor in Paris
