BAILOUT ANNOUNCEMENT:IRELAND WILL need "tens of billions" in external assistance to avert the State's monetary crises and to ensure Irish banks do not collapse, Minister for Finance Brian Lenihan confirmed yesterday afternoon.
In an interview with RTÉ's This Weekprogramme, Mr Lenihan said the final figure would be the subject of negotiation, but he added that it would be "nowhere near" €70 billion to €90 billion, and would definitely not be more than €100 billion as had been suggested in some quarters.
“I’m not going to be tied down on figures because the technical group are looking at the figures,” he said.
Mr Lenihan defended the steps that the Government had taken to deal with the banking crisis, saying they were “courageous, correct and bold”. He said however that the issues besetting Irish banks were ultimately “too big a problem for this country” and the State needed outside intervention.
The banks could no longer depend on funding from the European Central Bank to keep going as the “lender of last resort”, he told presenter Richard Crowley.
“This type of process cannot continue indefinitely,” the Minister said. “You have to stabilise your banks. Irish banks have to be weaned off Central Bank support.”
Mr Lenihan disclosed that he had met officials from the IMF, European Commission and the European Central Bank and his own officials on Saturday evening and concluded that the State should formally apply for an aid package, or what he called a “programme”.
The money involved would be a “very large sum”, but not all of it would be used, he stressed.
It would be a “standby fund” which would assure the markets that the Irish banks had “a display of firepower” behind them.
A “detailed structural plan for the resolution of all Irish banking difficulties” would be devised as part of the aid package.
Stress-testing would be done on the institutions involved to ensure that their capital positions are robust enough.
“The bulk of the money will be a contingency fund which stands behind the banking system,” he explained.
“The focus of the discussion is establishing a capital fund to demonstrate that the banks have the firepower in the event that further losses materialise in them.”
The Minister did not expect that the aid package would see a return of the €23 billion which had left the two main Irish banks, Allied Irish Banks and Bank of Ireland, in recent months, but he said “over time”, large deposits would return to them as confidence grew. “The key issue is that we do not have the collapse of the banking sector.”
The Minister denied misleading the public, saying it was only last Tuesday that he was given a mandate by Cabinet to negotiate a possible bailout with the EU. He went to the euro group meeting of finance ministers in Brussels that evening.
A statement was issued after that meeting that a team should go immediately to Dublin to look at the situation. He defended his reluctance to concede that a bailout was inevitable.
“I had to protect the position of the Irish taxpayer and the Irish State and, in that connection, it was very important that matters were clarified before we made any formal application,” he said.
“We have a much clearer view of what the shape of such a programme would be and we are now in a position to apply,” he said, adding that the negotiations for assistance would take several weeks.
When asked if the Government was left with no option but to accede to requests for a bailout, Mr Lenihan replied: “We are a sovereign state. We had an option to decide what was in the best interest of the State.”
He also asserted that no Minister had misled the public last weekend when they said that no talks had taken place. He said the Government had a duty to look at the terms of any application for aid before making one.
“You can’t be bounced into an application simply because the governor of one central bank in a vulnerable country goes live and says you should,” he said.
He said the State would be borrowing money at a rate “considerably less” than the 8 per cent rate which was now available to Ireland in the international markets, but the actual interest rate charged would be the subject of negotiations. “I’m sorry if people think I misled them. I certainly didn’t mislead them in any way and no member of the Government intended to mislead them,” he said.
He was repeatedly asked by the presenter if the admission that a bailout was necessary left the Government with a credibility problem and that a general election should be called.
A general election would be the “height of irresponsibility” at a time of economic crisis, Mr Lenihan replied.
“I think it is absolutely essential that this country is not plunged into economic chaos. It is essential that we publish a plan for economic recovery, the only viable plan. We will enact our budget on December 7th. Those are the statements that will generate confidence in Ireland.”
Mr Lenihan said he welcomed signals from France and Germany that the corporation tax rate would not be changed.
“That issue is not on the agenda. It has not been raised by the commission. It has been ruled out by the largest two member states in the euro zone [France and Germany]. If we interfered with our corporation tax, it would inhibit our ability to grow.”
He also gave the strongest indication yet that the minimum wage which is currently set at €8.65 an hour will be cut. He said the minimum wage was an issue that would “have to be reviewed by the Government”.
“The reality of the position with the minimum wage is that, like many other payments in Ireland, it increased far beyond the rate of inflation from 2002 to 2008,” he warned.
However, he confirmed the Croke Park pay agreement would be part of the four-year plan. “We have not activated the emergency clause to repudiate Croke Park . . . but if there is an annual review it might be something that is discussed,” he said.