EC Approves Irish Bank Guarantee

The European Commission has approved another extension of the Dáil Government's banking guarantee until the end of June next year.

The extension, put to the EU by the Irish Department of Finance, means the Government will continue its controversial policy of using taxpayers money to insure against the collapse of Ireland's troubled banks.

In a statement this morning, the EU's executive branch said the ongoing guarantee was an appropriate means of remedying "a serious disturbance in the Irish economy".

"The Commission considers the extension of the measures to be in line with its guidance on state aid to banks during the crisis and the recent adjustment of the rules for state guarantees."

The Commission went on to say that the extended measures were "well targeted, proportionate and limited in time and scope", but added that the extended guarantee included higher premiums for the state guarantee, which were made in order to provide an incentive for banks to refinance themselves on the markets without state support and to limit distortions of competition.

The extension of the guarantee came as Ireland's cost of borrowing rose again today. The interest rate demanded by investors to lend money to Ireland for ten years stood at 8.21% this morning.

Finance Minister Brian Lenihan has been forced to defend today's decision and the Government's ongoing economic strategy against a number of criticisms being levied as Ireland's economic recovery hits yet increasingly bumpy terrain.

This morning, a damning article by the respected Professor of Economics at University College Dublin, Morgan Kelly, has placed yet further pressure on the Government.

The article claims Ireland is effectively insolvent and will be forced to look to the EU for a bailout once mortgages begin to default in vast numbers.

Writing in the Irish Times, Professor Kelly said that the bailout of both the AIB and Bank of Ireland will inevitably cost as much as Anglo, which has so far crippled the Irish economy costing the taxpayer around €30 billion.

The professor said that despite starting with more capital to absorb losses better than Anglo, the AIB and Bank of Ireland face much higher losses through mortgage defaulting, which was set to experience an explosion very soon.

"Once we accept, as the Government does, that Anglo will cost the taxpayer about €30 billion, we must accept that AIB and Bank of Ireland will cost at least €30 billion extra," he said.

The professor went on to say that the total bill could come to €70 billion, meaning a possible Greek-style bailout for the State by the EU.

(DW/GK)