THE MINISTER FOR FINANCE Brian Lenihan has all but admitted that Ireland will ultimately accept a bailout from the International Monetary Fund and European Central Bank – saying the banking sector needed external assistance in order to stay in operation.
Speaking on RTÉ’s Six One News this evening, Lenihan said Ireland faced a massive difficulty because “the banks grew to such a size that they became unmanageable for the state itself. That’s why we have to consider external assistance to stabilise our banking system. And we do have to.
“We have to find a resolution to our banking difficulties, with whatever external assistance is appropriate,” the minister said.
It was his job in that light to “protect the taxpayer”, and the role of the government to decide “whether this package is in the best interests of the taxpayer, or whether it will be a burden”.
His comments followed those of Central Bank governor Patrick Honohan, who this morning said he expected the result of the talks taking place between Ireland and the foreign funding agencies to be emergency funding worth “tens of billions of euro”.
Defending the government’s apparent denials that such talks were taking place – or that a bailout was not an inevitability – Lenihan said a decision on whether to proceed with budget talks had only been made at a meeting of Eurozone finance ministers on Tuesday night.
When did they start?
“A decision was made about this on Tuesday” Lenihan said. “That’s why the delegation [from the IMF and ECB] is in Dublin today, having these talks. There weren’t extensive official discussions before the decision.”
His comments come apparently at odds with a news story from Tuesday, when a senior EU official told Bloomberg the talks had already begun. That night, after the Eurozone meeting, EU economics commissioner Olli Rehn said talks would be “relocating” to Ireland, having begun at the weekend.
Lenihan insisted, however, that Ireland was not losing its financial sovereignty, arguing that Ireland had willingly entered into “pooled sovereignty” with the other members of the European Monetary Union after a public referendum.
The IMF would not be making final decisions on the government’s four-year budgetary strategy, which the cabinet had almost agreed upon – and it would certainly not have the right to force a change in Ireland’s benchmark corporation tax rate of 12.5%, which Lenihan said lay behind a “red line”.
The requirement of extra funding for the banking sector will be underlined tomorrow when AIB, the country’s largest retail bank, is likely to announce that it has lost billions in deposits – following Bank of Ireland’s admission that it saw €10bn leave its books in the third quarter.
Those deposits have been brought elsewhere as investors lose confidence in the government’s bank guarantee, which was yesterday extended until December 2011.
It appears, however, that the weight of a sovereign guarantee is no longer enough to soothe the fears of investors – meaning international backing seems to be the only way for Ireland to keep its banking sector in full function.