EU to decide on extending guarantee scheme

THE EUROPEAN Commission will decide before the end of this month whether to extend the bank guarantee scheme until December 31st.

Minister for Finance Brian Lenihan told the Dáil that the guarantee for senior debt which takes priority over unsecured debt, “is due to lapse on September 29th, but we are in discussion with the commission on an extension to the end of the year”.

Asked by acting Fine Gael finance spokesman Kieran O’Donnell if he envisaged the debt “just being guaranteed to the end of December”, Mr Lenihan said “that is my expectation of what the final assessment of the commission and the national authorities will be”. He stressed that the bank guarantee extension would “not apply to subordinated debt”.

During finance questions the Minister said that under the original bank guarantee scheme from September 2008 some €29 billion of longer-term bank debt was due to be refinanced by the end of September this year.

“Obviously a prolongation of the ELG [eligible liability guarantee] scheme would provide a good basis for the refinancing of these liabilities.” Labour finance spokeswoman Joan Burton asked the Minister to confirm figures she received from his department that €74 billion in guaranteed liabilities “will mature before the end of September when the original end of September guarantee comes up”. She also asked if the Minister proposed to roll over this debt or “try to go to the end of the year”.

Mr Lenihan said his information about the “difficulty of the cliff on 29th September” was that €29 billion was due for refinancing but he would “revert to the deputy about the wider figure”.

After December 31st, 2010, “the ELG scheme will provide and already provides for the possibility of refinancing under guarantee”, he said.

Ms Burton said “this guarantee is not the shortest, cheapest no-cost guarantee in the world” as Fianna Fáil had claimed. “All of our banks remain on life support from the guarantee and continue to require that support.” She said the guarantee needs to be extended and “€60 billion of debt on October 1st needs to be either rolled over, extended or included in the eligible liabilities guarantee scheme”. That meant “at least €4 billion of this year’s budget will need to be paid to cover the cost of servicing all these different debt requirements”.

The Minster said Ms Burton “is confusing a number of different markets. As far as the guarantee is concerned, the Government will receive substantial moneys from the banks.”

Earlier Mr O’Donnell asked why did the department agree to a request from the two main banks to include subordinated debt in the 2008 guarantee when advisers indicated it should be excluded. Mr Lenihan said the advice was just one note or element in the overall facts and he would make the entire file available so the advice could be placed in an overall context.

He stressed that no loss because of subordinated debt had materialised to date “because no such subordinated bonds have been paid in Anglo Irish Bank or Irish Nationwide” and because there had been no liability it “is of no importance”.