EC to review bailout terms

THE European Commission was waiting last night for details of the Government’s €400 billion guarantee to Irish banks under competition rules.

It will examine the scheme to see if it constitutes state aid and if so whether it breaches the rules.

The Government will either have to prove that the banks could have got similar cover from commercial sources under similar conditions or that the move is justified and does not distort competition.

The Government has said that the Central Bank would charge or levy the six Irish banks involved in the scheme, and indicated to Brussels that this is on commercial terms.

However the terms and conditions of the scheme will also be examined and compared with what is available on the market.

If the move is found to contravene the rules, the Government could be told to abandon the scheme, but the more likely scenario is that officials from the Commission’s Competition section would discuss ways of amending it with the Irish Central Bank and Department of Finance officials.

The Government is understood to see the move as rescue aid, similar to the British bail-out of Northern Rock. However, such aid is limited to six months under EU rules, yet Finance Minister Brian Lenihan said it would last for two years.

The Northern Rock situation was resolved by turning the package into restructuring aid, a process that involves working with EU officials to ensure that the bank is viable in the longer term.

Competition spokesperson Jonathan Todd said they had been in close contact with the Irish authorities that had informed them overnight of the guarantee measures. “If there is any state aid involved, we will look at it as a matter of urgency. We expect the details to be given to us shortly and we will consider it and take action quickly if that is necessary.”

The Commission said there was no suggestion that they would suspend state aid rules, as they had been proven to be a very good framework to co-ordinate response to situations over the past few years.

“They are part of the solution rather than the problem. They guarantee a level playing field, which is part of the confidence that you need and ensures no country has an unfair advantage,” said Mr Todd.