Government seeks more leeway over banking crisis
Noonan warns bailout partners about threat to sustainability of rescue deal
THE new Government will today launch a charm offensive to convince the bailout partners to give Ireland more leeway to deal with a banking crisis that could threaten the "sustainability" of the December rescue deal.
Sources yesterday confirmed a team from the ECB, the European Commission and the IMF would arrive in Dublin today at the invitation of the new Government.
The Government is expected use the meetings to hammer home the "fragility" of the Irish situation, honing in on the fact that the current package may not be "sustainable" if the latest stress tests show Irish banks need more than €35bn.
Officials will also use the talks to elaborate on Mr Noonan's appeal to ECB president Jean-Claude Trichet to commit to a broader package of aid for Ireland than that outlined in the original bailout.
Mr Noonan told reporters in Brussels he had asked Mr Trichet to consider giving Irish banks "longer" to sell off assets so they can reduce a €170bn dependence on central bank liquidity.
He is also asking the ECB to provide more "medium-term" liquidity than the current operations, which run from seven days to 90 days.
A spokeswoman for the ECB declined to be drawn on whether Mr Trichet was receptive to Mr Noonan's overtures, which were made on the sidelines of meetings of European finance ministers.
It is understood that the Frankfurt-based bank would need far more detailed information from Ireland before it could properly consider the proposals. Mr Trichet has also repeatedly stressed that Ireland must "follow the plan" originally agreed.
The talks with the bailout partners, which come ahead of a full review of Ireland's progress next month, will extend to all aspects of the new Government's economic plan, but are expected to focus heavily on banking.
Mr Noonan used his meetings in Brussels to warn that Ireland's debt situation could become "unsustainable" since the banks were likely to need more than the €10bn initial injection envisaged in the bailout plan.
"I couldn't possibly identify that point [when it becomes unsustainable] because we don't have the stress tests results yet," he said yesterday.
"I'm just signalling a situation that may emerge, so that the ECB and the troika are aware of the fragility of the position and [are aware] that when it comes to restructuring the banks they may have to give us some flexibility."
The existing bailout provides for an initial injection of €10bn plus a €25bn contingency fund, implying a total pool of €35bn is available.
Banks are awaiting the stress tests results with increasing trepidation after Mr Noonan's comments on the likely levels of capital to be demanded.
Mr Noonan said the Government planned to tackle bank restructuring "as soon as" the results of the Irish stress tests came in and they had "adequate information to justify the decision".
"What I want is a viable banking system for Ireland, probably centred on the two main banks," he added. "I'm not going to describe what we get beyond that point."
Meanwhile, Irish Life & Permanent issued a statement to the stock market confirming the details of its deal to take more than €3.6bn of deposits from Irish Nationwide.
The deal strengthened Irish Life's loan-to-deposit ratio (a key target of the bank restructuring package) but would have a "marginally negative" impact on earnings and capital, the bancassurer confirmed to investors.