Bank scheme second largest

IRELAND’S bank guarantee scheme was the second largest in the EU and accounted for a sixth of the total €4.5 trillion that member states used to underwrite their banking sectors over the past two years.

However, less than half of the total sum was used by EU countries who drew down €2,063 billion to recapitalise, repair and cover deposits since the financial crisis began in 2008.

The figures were released by the European Commission yesterday, as they have to approve the amount of aid countries can give to business.

Ireland got approval for €723 billion, second only to Britain that chalked up €850bn. Denmark, the only other country with Ireland that gave a blanket guarantee for its banks, had approval for just short of €600bn.

The amount of state aid approved by the Commission shot up from 0.5% of GDP in 2007 to more than 3.5% last year. This included sums for industry — which in Ireland’s case increased to €1.5 billion — excluding that given to railways in 2009.

The money for the banking sector was allowed under a temporary change to state aid rules and Competition Commissioner Joaquin Almunia announced that this change will be extended to the end of 2011.

However, he will begin phasing it out by insisting that every bank that wants state support in the form of capital or impaired asset measures would have to submit a restructuring plan to the Commission.

“After two years of a specific crisis state aid regime, we need to prepare a gradual return to normal market functioning,” he said.

Over the past two years only banks in obvious trouble had to do so.

Mr Almunia added that, because the risk of renewed stress remained, the exit process would “proceed with care and caution”. He is likely to introduce new state aid regulations in early 2012.