Lenihan assures EC over bank deposit plan

Finance Minister Brian Lenihan tonight assured the European Commission that his government’s plans to guarantee bank deposits would avoid distorting financial markets across the EU.

Mr Lenihan held talks with EU Competition Commissioner Neelie Kroes in Luxembourg, where EU finance ministers will assess the continuing fall-out from the state of the markets and attempt to restore consumer confidence in the banks.

Ireland’s pledge to guarantee all debts and deposits in its six biggest banks for two years annoyed British Prime Minister Gordon Brown and German Chancellor Angela Merkel, who feared such a unilateral decision would trigger a flight of capital out of the UK and Germany to Irish banks.

Ms Kroes also warned last week Ireland that EU countries should not go it alone without consulting the EU’s state aid and competition authorities.

EU officials warned once again today that the sweeping Irish plan could breach not just state aid rules, but also single market rules governing cross-border discrimination – something under the charge of Irish Commissioner Charlie McCreevy.

Mr McCreevy has defended the Irish plan, and also defended the fact that Dublin has yet formally notified its terms to Ms Kroes, whose officials will have the final say on its legality or otherwise under the EU rules.

But tonight Commission officials said the first face-to-face discussions between Mr Lenihan and Ms Kroes since Dublin took action had been useful.

A statement said the pair had discussed the Government legislation relating to bank guarantees and added: “The meeting was constructive and important in clarifying Irish intentions in relation to the implementing measures to be introduced shortly under the terms of the legislation.

“The Commissioner raised concerns regarding possible discrimination between different banks operating in Ireland and the minister confirmed that he is addressing the issues arising in that regard.”

The statement went on: “The Commissioner and the minister agreed that these issues should be analysed by reference to the position of the beneficiary banks in the national economy.

“They also agreed on the importance that steps would be taken to guard against undue distortions in financial flows, and the minister indicated that these concerns would be addressed through the implementing measures, currently being drafted, which will provide for both behavioural controls and quantitative balance sheet controls.”