Friday 19 July 2019

Lenihan 'to seek EU funds for the banks'

Move would let State save face and avoid bailout threat

Fionnan Sheahan and Siobhan Creaton

FINANCE Minister Brian Lenihan is considering asking for money for Irish banks from the EU emergency fund in a bid to fend off a threatened bailout for the State.

The Irish Independent understands Mr Lenihan may ask fellow European finance ministers in Brussels tomorrow if it would be possible for the banking sector alone to access money from the rescue fund.

The Government is braced for market reaction this morning to intense speculation over the weekend that Ireland is being forced into seeking an EU bailout.

European officials reportedly want the Government to avail of emergency loans of €60bn to €80bn to ease the pressure on the euro area.

But under the Government's alternative plan, emergency funds would be funnelled into Irish banks -- and not state coffers -- allowing the Government to save face while maintaining control of the economy.

The Coalition is also weighing up the early publication of the four-year budgetary plan next week, ahead of the Donegal South-West by-election, to boost investor confidence.

And there were strong suggestions last night that Budget 2011 might also be brought forward a week earlier from December 7 to calm the markets.

The Government continues to insist there are no talks about a state bailout and it is not applying for emergency EU funding.

But a senior source told this newspaper that the Government was emphasising the State was funded until well into next year, while avoiding talking about the banks' position.

The virtual collapse of Ireland's banking system has left financial institutions here almost totally reliant on the European Central Bank for funds to conduct their day-to-day business. It has extended €100bn to Irish banks so far.

"There is no question about Irish sovereign debt -- the question remains about the funding of the banks. The banks are having trouble getting money," said the source.

"We have to find out -- could you go to the fund and get money for the banking sector?

"The Irish State doesn't need the funds. There are no negotiations. People haven't separated the two issues -- the State and the banks. What is the problem? The problem is about the banks, rather than the sovereign (funds)."

The banks need rolling money to stay afloat because they can't borrow on the international markets and there has been an exodus of corporate deposits from the sector.

But applying for bank funding from the EU emergency fund, the European Financial Stability Facility, is uncharted territory and might not be accepted by EU leaders.

"What are the implications of that? It's just not straightforward," said the source.

"Lenihan at ECOFIN (this week's European finance ministers' meeting) presents an opportunity to discuss it. It would be the banks that would have to pay it back -- not the State."

All eyes will be on the bond markets this morning to gauge investor reaction to the weekend reports. The yield on Irish government bonds fell to 8pc on Friday after hitting highs of 9pc the previous day. The fall came as reports began to emerge that an €80bn debt relief package was being prepared to help Ireland borrow in 2011.

Bailing out Ireland's financial system could cost as much as €50bn, according to Department of Finance and Central Bank assessments.

The Irish economy, by comparison, will need funding in the order of €23.5bn next year, falling to €18.6bn in 2014.

The Government has sufficient funds for this purpose until the middle of next year.

The extent to which investors have lost confidence in the banks was seen when Bank of Ireland reported that international customers had pulled €10bn of corporate deposits out of the bank before the government guarantee was extended in September. This week, AIB will issue a trading statement and it is expected to show similar outflows.

Weekend reports suggest the ECB spoke with Ireland's Central Bank on Saturday to urge it to support an application for a bailout -- although this was not confirmed by the bank.


Other European countries are concerned about the "contagion" affect that Ireland's problems are having on other vulnerable economies, such as Portugal, whose foreign minister yesterday warned that it may be forced to exit the euro if it failed to address its financial problems.

Enterprise Minister Batt O'Keeffe and Justice Minister Dermot Ahern were emphatic yesterday that the Government could manage its own affairs.

"It is fiction (speculation about the bailout) because what we want to do is get on with the business of bringing forward the four-year plan," said Mr Ahern.

"We obviously have to ignore a lot of this speculation because it is only speculation. We have not applied. There are no negotiations going on. If there were, Government would be aware of it, and we are not aware of it."

Meanwhile, the Government is thinking about publishing the four-year budgetary plan, outlining where €15bn worth of spending cuts and tax hikes would be made, early next week rather than waiting until after the by-election.

A coalition source said: "It doesn't affect the by-election... It's more of a question of when it (the plan) is finished."

Irish Independent

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