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Battle lines drawn as Europe insists Ireland's banking sector needs its help

As finance ministers meet, Olli Rehn says there’s liquidity crisis in the banks – contradicting Brian Lenihan.

Olli Rehn, left, talks with Portugal's finance minister Fernando Teixeira dos Santos during a Eurogroup meeting at the EU Council in Brussels this morning.
Olli Rehn, left, talks with Portugal's finance minister Fernando Teixeira dos Santos during a Eurogroup meeting at the EU Council in Brussels this morning.
Image: Geert Vanden Wijngaert/AP

EUROPEAN ECONOMICS COMMISSIONER Olli Rehn has insisted that there is a major liquidity crisis affecting Ireland’s banks – and has stressed that an emergency financial package to assist them could only be offered in the form of a bailout issued directly to the Irish government.

Speaking following a meeting of the European Union’s 27 finance ministers in Brussels, Rehn said the talks between representatives from Ireland and officials from the European Commission, European Central Bank and the International Monetary Fund were focussing on two main topics – the plan on how best to meet the four-year budgetary targets and the reorganisation of the banking sector.

Rehn insisted, however, that the banking sector “was in need of re-organisation” and had liquidity problems that needed “to be examined” – almost directly contradicting Brian Lenihan who had this morning told Morning Ireland there were no such issues.

Furthermore, Rehn said there was no way for a potential emergency funding package to be offered directly through the banking sector – all but saying that global funding sources were keen to introduce new cash to the Irish banking sector, in a way that could only be done by offering Ireland a bailout package.

‘Bailout’ talk “pejorative”

Rehn’s comments came after Brian Cowen this morning played down beliefs that the ongoing talks with the EC, ECB and IMF were paving the way for Ireland to accept a bailout, a term the Guardian reports that he felt was “pejorative”.

The talks, Cowen said, were instead trying to determine “in what way can assistance be provided to ensure that these issues can be dealt with properly and appropriately in present circumstances”.

His insistences were written off by opposition leader Enda Kenny, who said the IMF were not coming to Dublin – where talks are reportedly set to resume as early as tomorrow – to say, “Keep at it, Brian”.

Cowen’s claims that bailout talks had not begun – or that the current meetings were not trying to set one up – were also seemingly undermined by backbench TD Seán Fleming, who admitted to RTÉ Radio’s News at One that there were “technical discussions” underway between officials and senior civil servants to “consider all options”.

“This is what officials are paid to do,” Fleming said, adding that the government hadn’t been prepared to admit to the talks beforehand because the meetings in Brussels “only happened yesterday”.

Westminster debates assistance

Westminster, meanwhile, has been debating the reports in the UK papers this morning that the Treasury could be willing to offer a unilateral £7bn loan to Ireland.

Mark Hoban, the financial secretary to the Treasury – sitting in with George Osborne being otherwise engaged in Brussels – said Ireland was “one of our biggest export markets… we have very close ties with them,” and added that the UK stood “ready to help Ireland with the steps it needed to take”.

Many MPs, however – in particular those of the senior coalition partner, the Conservatives – were anxious about the UK being involved in a potential pan-continental rescue package, though it was broadly agreed that it was the Irish banking sector and not the government itself that were fueling the crisis.

Rehn had earlier said a unilaterial rescue package from the UK was “under discussion, and it is natural because the United Kingdom and UK banks have a very significant exposure in Ireland.”

Larger than first thought

No parties were willing, however, to give any indication of the potential size of a rescue package – which could, it is now feared, be larger than first estimated.

The Guardian’s Henry McDonald reports that the size of any potential package had been “underestimated because one of the Irish banks had undervalued the amount of money needed to save it”.

A government source had claimed that “the scale of the cash injection needed to shore up Allied Irish Banks was even greater than what the financial institution had first told the government.”

The cost of borrowing for the Irish government remains high, with the price falling only modestly in trading so far this morning to stand at 8.164% for ten-year bonds as of 1:30pm this afternoon.

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Gavan Reilly

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