Published March 24, 2011
BRUSSELS/DUBLIN – Ireland's prime minister will make a plea for more time to tackle the country's banking problems when he meets other EU leaders on Thursday, a European diplomat said ahead of the summit.
The European Central Bank, which is supporting Irish banks by lending them money they would normally borrow from peers, wants to gradually withdraw this, but Irish Prime Minister Enda Kenny will seek to rally support among EU leaders for more leeway.
ECB President Jean-Claude Trichet, who also attends the meeting, will likely meet Kenny to discuss the matter, days after Irish Finance Minister Michael Noonan made a similar plea to the head of the central bank.
Concerns are mounting that Ireland may need more than the 35 billion euros ($49 billion) already set aside under an EU/IMF bailout to prop up its banks. Dublin is also worried that pressure from the ECB could force a firesale of bad Irish loans and exacerbate its problems.
But with bank stress tests still under way and any preliminary findings under wraps, Kenny is unlikely to be able to soothe concerns about a larger rescue bill.
In a draft statement due to be published after the March 24/25 summit, the leaders will outline only their ambition to agree on a plan to restructure troubled banks and decide how governments can help them.
But they will likely leave many questions unanswered, including how Ireland could be helped further if its existing bailout loans are not enough.
Nor will they agree on the technicalities of how to increase the lending capacity of the European Financial Stability Facility, the current EU scheme to help countries in financial difficulty.
ECB loans outstanding to banks in Ireland hit 117 billion euros ($165 billion) last month, more than a third higher than a year ago. The Irish central bank has also more than quadrupled its lending to the country's banks, to 70 billion euros, over the same period.
The ECB is working on a plan to wean struggling banks in Ireland and elsewhere that remain reliant on its funding, which policymaker Axel Weber hinted could be ready by the third quarter of this year.
The Irish government still hopes it will be allowed to hand losses to some senior bondholders in Irish banks, a move many both in Brussels and other European capitals fear could prompt a new investor scare.
Such a move could affect the more than 11 billion euros of bonds issued by Irish banks AIB and Bank of Ireland.
These are not covered by a state guarantee handed out in haste to protect Irish banks, but which saddled the taxpayer with a bill many believe is unmanageable.
Ireland will have the results of its banking sector stress tests by the end of this month, though it is still not clear how high the bar will be for banks to pass these financial health checks.
In the last round of tests, Irish banks were given a clean bill of health -- only months before the EU and International Monetary Fund were called to provide a bailout. (Additional reporting by Marc Jones in Frankfurt, editing by Rex Merrifield and Stephen Nisbet)