Irish Finance Minister: It's the Banks That Are Bankrupt, Not the Irish State
November 16, 2010 • 10:45AM

It is not the Irish government which is bankrupt but the banks. The Irish Independent, quoting government officials reports that Finance Minister Brian Lenihan is considering asking for money for Irish banks from the European Financial Stability Facility at the meeting of Euroland finance ministers in Brussels tomorrow. It is clear that this is a counter-move by Dublin to prevent the EU from putting the entire burden for the bailout of the Irish banking system on the backs of the Irish people.

"There is no question about Irish sovereign debt — the question remains about the funding of the banks. The banks are having trouble getting money," an unnamed government source told the Irish Independent. "We have to find out — could you go to the fund and get money for the banking sector? The Irish state doesn't need the funds. There are no negotiations. People haven't separated the two issues — the state and the banks. What is the problem? The problem is about the banks, rather than the sovereign (funds)."

The daily writes that there has been an exodus of corporate deposits from Irish banks, while the banks are fully dependent on the European Central Bank for credit. "What are the implications of that? It's just not straightforward," said the source. "Lenihan at ECOFIN (this week's EU finance ministers' meeting) presents an opportunity to discuss it. It would be the banks that would have to pay it back — not the state."

A few days ago the Bank of Ireland reported that international customers had pulled EU10 billion of corporate deposits out of the bank before the government guarantee on EU145 billion of bank assets was extended in September. This week, the Inter-Alpha Group's AIB will issue a trading statement and it is expected to show similar outflows.

European Central Bank Vice President Vitor Constancio confirmed everything, telling the Irish Times, "The Irish state is financed until part of next year, but it is also a problem of the banks that are at the center of the problems in Ireland and considerations have to be pondered." He added Ireland should use the EFSF to bail out its banks. The only problem, he said, was that "According to the regulations of that facility, it cannot lend directly to banks," but quickly added, "The facility lends to governments, but then the government, of course, may use the money for that purpose," thus confirming that Dublin is being pressured to put on Irish taxpayers' shoulders, what could be hundreds of billions of euros.