FG: No voters misled on bank bailout

THE Government has been forced on the defensive over its decision to allow taxpayers pay for the bank bailout and leave senior bondholders untouched.

Finance Minister Michael Noonan insisted yesterday that Fine Gael had broken no election promises. Public Expenditure Minister Brendan Howlin similarly denied that Labour had misled the public during the election.

But the coalition was accused of reneging on their promises and putting the interests of the bondholders first.

It came as shares in the banks fluctuated widely following the Government announcement that it would pump another €24 billion of taxpayers’ money into the sector, bringing the total bailout to €70.3bn.

Shares in Bank of Ireland and AIB increased in value after it emerged that the institutions would be overhauled to form the twin pillars of a new banking system.

But shares in Irish Life & Permanent fell following the announcement that its profitable life insurance arm and other assets are to be sold to raise fresh capital.

Separately, Ireland was downgraded one level by ratings agency Standard & Poor’s because of the increased cost of the bailout.

But the agency nonetheless expressed confidence in the latest stress tests on the banks, indicating a belief that the latest €24bn should be sufficient to fill the black hole.

This together with a pick-up in the economy meant the outlook for Ireland was now “stable”, the agency said.

But anger mounted over the Government’s decision to pump in the €24bn without inflicting any losses on the senior bondholders.

Fianna Fáil said the coalition had performed a U-turn on their election promises and “misled” the public.

Party spokesman on financial reform Michael McGrath said it was also clear the Government had failed to secure a scheme from the ECB to guarantee day-to-day liquidity funding for the banks over the medium term.

Sinn Féin said the Government’s announcement had demonstrated “who is pulling the strings”.

“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,” Sinn Féin president Gerry Adams said.

But Mr Noonan insisted the Government had not broken any promises, saying Fine Gael had always said it would act only under the “umbrella” of the EU and ECB. He reiterated that the ECB had been opposed to any burning of senior bondholders, and the Government could not risk going against its wishes “on the basis that the bank is supplying almost €200bn in liquidity to the Irish banking system”.

Similarly, the secretary general of the European Commission, Irishwoman Catherine Day, said the ECB had “the means to prevail” on the bondholder issue because they were providing the day-to-day funding to keep the Irish banks running.

But the Commission indicated that the Government would get at least one concession shortly — a reduction in the interest rate applied to the bailout loans.

An interest rate cut is expected to be on the agenda for next week’s meeting of finance ministers in Budapest and the Commission will support it, a spokesman for EU Economics Commissioner Olli Rehn said.