Noonan denies breaking promises on banks
Finance Minister Michael Noonan has denied reneging on election commitments to force major European bank lenders to take a hit on losses.
Minister Noonan said the Fine Gael-Labour Government was under intense pressure from the European Central Bank to shield senior bondholders, lenders first in the queue to be repaid, from sharing the pain.
The Government is about to pump another €24bn into the failing banks to keep them afloat and plans to shrink the sector from six homegrown lenders to two so-called pillar banks.
"We haven't broken our word," Mr Noonan insisted.
"We always said in the election that anything we did was under the umbrella of the European agencies and in consultation with the Central Bank in Frankfurt."
The multibillion-euro bailout marks the fifth attempt at putting money into the State banking sector, bringing the total bailout cash to half the value of the entire economy: a staggering €70bn.
It follows the results of long-awaited stress tests to examine whether the banks have enough cash to withstand another downturn.
Under the Government's restructuring plan of the sector, Allied Irish Banks (AIB) and EBS Building Society will merge to form one banking "pillar", while Bank of Ireland will form the second.
Shares in Bank of Ireland and AIB jumped when stock markets opened but Irish Life & Permanent stocks plunged by more than 50% because of its plan to sell off its lucrative insurance wing.
International investors were still sceptical that the moves could fix the Irish banking crisis, the costliest in history.
Ratings agency Fitch warned Ireland was being put on watch for a downgrade, while Standard & Poor's lowered its long-term credit rating from A- to BBB+, making it more expensive to borrow money if Ireland was in the markets.
Under the latest recapitalisation plan, Mr Noonan has signalled that Bank of Ireland and AIB junior bondholders should be hit for €5-6bn but the senior bondholders, institutional investors at the top end of the scale, will not be forced to take a hit.
Mr Noonan, who took office less than a month ago, said the Government could not persuade the European Central Bank to support burden sharing.
"We always said we wanted burden sharing. But we would not do it unilaterally," Mr Noonan said.
"We would only do it with the agreement of Frankfurt and we didn't get the agreement."
Mr Noonan said there was merit in forcing senior bondholders at nationalised Anglo Irish Bank to share the burden on the huge losses but it was not part of the stress tests and did not need extra capital.
Sinn Féin President Gerry Adams accused the Fine Gael-Labour coalition of pursuing the same "failed" policies of the former Fianna Fáil-Green administration.
"Yesterday's announcement by Finance Minister Michael Noonan following the results of the bank stress tests makes it quite clear who is dictating the agenda and who is pulling this Government's strings," Mr Adams said.
"A political decision has been made to inject a further 24 billion euro into a defunct banking system without any attempt to go after senior bondholders.
"The Government is continuing to pursue Fianna Fáil's failed policies on the banks and they are now acting as little more than agents for the IMF in Ireland."
But Education Minister Ruairí Quinn of the Labour Party defended his Government colleague, claiming: "Michael Noonan has less room for manoeuvre than Michael Collins has, the first Minister for Finance in the Irish Free State."
Justice Minister Alan Shatter said forcing Anglo's lenders to take a hit had yet to be resolved.
"In fact there is burden sharing as part of this deal in the sense that the insubordinated bondholders clearly are going to be affected by the outcome of what's occurred," the Minister insisted.
"There's the issue of senior bondholders in Anglo Irish which remains to be addressed."
Mr Shatter said the Government was committed to further negotiations on the IMF-EU bailout deal.
Ireland is pushing for a reduction in the interest rate but faces pressure from Europe over our controversially low 12.5% corporation tax.
"I believe the decisions made by the Government, the decisive nature of those decisions, the restructuring of the banks, gives this country a genuine opportunity to rise like the phoenix from the ashes," he said.
"Yesterday was a first step in the measures necessary to give certainty with regard to banking issues."
Taoiseach Enda Kenny said yesterday that the stress tests would now bring clarity and purpose to the Government's negotiations to ease the terms of the multibillion international bailout.
Mr Kenny promised a "diplomatic onslaught" across Europe to renew connections.
