State had to move on bank guarantee, says Cowen

Ireland wants to co-operate with other European Union member states, but it "simply had to move" last week to safeguard Ireland's banking system, Taoiseach Brian Cowen has said.

Questioned about German Chancellor, Angela Merkel's unhappiness at Ireland's unilateral move, Mr Cowen events "were taking place which were putting at risk the whole financial sector. We simply had to  respond."

"We seek to deal with this matter in as co-operative a way as possible, but there are certain issues where our national interests were at stake and we simply had to move."

Today, the Minister for Finance, Brian Lenihan faces questions from fellow EU finance ministers when he attends the ECOFIN meeting.

However, the credibility of the German criticism of last week has been damaged by Chancellor Merkel's decision yesterday to guarantee German bank deposits.

Speaking in Dublin this afternoon, Mr Cowen said the Irish Government had to "defend the stability of our own financial system, but, hopefully, we (can) at a European level and a wider global level find a means by which this problem is resolved."

The full terms and conditions of the Irish offer to banks may not be ready for publication later this week, Mr Cowen indicated, when he spoke at the Royal Hospital, Kilmainham.

Questioned about criticism of the Financial Regulator, Pat Neary, Mr Cowen offered a defence: "In fairness, I think the Fin Reg and the IFSRA system was a system that was devised in recent years to try and
modernise the regulatory framework.

"I think the challenges that face us now probably require an enhancement of that system and sufficient resources and personnel to monitor on what it happening. We build on what is happening at the moment, rather than discard what we have. That would not be a good move at all. There is an institutional memory and expertise that should not be discarded in any way."

Credit will be tighter in years to come, he said: "Despite the decisions that we have taken last week the global liquidity money markets are still very difficult, and are not much more liquid than  they were last week."

Meanwhile the European Central Bank said today that the Government should have “properly'” informed European Union officials before announcing new laws to guarantee the deposits and borrowings of six financial institutions.

“It would have been advisable to properly consult other EU authorities on the envisaged legislative plans,'' the ECB said in an opinion on the Government program published on its website today. The ECB is also concerned the guarantee provides the lenders covered by the scheme with “preferential treatment”.

The government last week announced the two-year guarantee to shore up confidence in a banking system buffeted by turmoil in credit markets. The German, Danish and Belgian governments today stepped in to support financial institutions hit by the credit crunch.

The Irish government asked the ECB for its view and the central bank's opinion is not legally binding.

Financial shares across European fell the most in a week today with the Bloomberg Banks and Financial Services Index declining as much as 8.5 per cent, the biggest decline since December 1996, led by a plunge in Hypo Real Estate Holdings AG and Anglo Irish Bank.

Neelie Kroes, the EU's top antitrust chief, said the plan will pass EU scrutiny with “some fine tuning”.

“Some concerns have been raised about the scope of the measure,” Mr Kroes told the European Parliament's economic and monetary affairs committee in Brussels today.

“The measure doesn't seem to cover all existing credit but also future credit.”

She added: “The measure also raises issue of discrimination. I welcome signs of opening of Irish authorities to apply the measure to other banks. I'm confident that with some fine tuning the Irish scheme can be put into line with EU rules.”

© 2008 irishtimes.com