Ireland to Shrink, Merge Banks as Part of Bailout
Finance Minister Brian Lenihan said Ireland's banks have become wholly dependent on loans from the European Central Bank and looks likely to be frozen out of normal credit markets for at least a year.
He stressed that Ireland has no plans to force senior bondholders of Ireland's five state-supported banks to absorb losses, as German Chancellor Angela Merkel says will eventually start to happen when new European Union crisis-management rules are enacted in 2013.
"We've always acknowledged as a sovereign state that we pay our senior debt. I've not seen any push to have senior debt dishonored," he said.
Lenihan reiterated that the loan - requested Sunday after weeks of Irish denials that it needed any aid - won't exceed euro100 billion ($137 billion). But he said the headline figure would become clear only after another week or two of negotiations in Dublin involving experts from the Washington-based International Monetary Fund, the Brussels-based European Commission and the Frankfurt-based ECB.
Ireland's finance chief said he agreed with European colleagues that the Dublin banks - which borrowed money aggressively and pumped it into runaway Irish, British and American property markets for a decade - needed to be cut down to size and refocused purely on supporting Irish savers, home owners and businesses. Most of their remaining foreign assets "will have to be discarded," he said.
"Because of the huge risks they (Irish banks) took earlier this decade, they became a huge risk not only to this state but to the eurozone as a whole," he said.
In Brussels, European Union monetary commissioner Olli Rehn said the aid negotiations with Irish government departments, agencies and banks, which began Thursday, can reach a conclusion by the end of November.
EU foreign ministers gathering for their monthly Brussels meeting said they had no real choice but to help Ireland stabilize its banks and cope with its mounting debts because, just like Greece in May, the 16-nation eurozone cannot allow one of its members to default.
"We are all in a very diffcult financial situation," said Finnish Foreign Minister Alexander Stubb. "We are in this boat together and we will find a solution to this crisis together. And the reason is very simple - we cannot afford to leave one single country alone."
Lenihan said Ireland still has more than euro20 billion in own cash reserves and hopes it can emulate South Korea, which got an IMF bailout in 1997 and returned to borrowing from open markets a year later.
"We're not bust. We have substantial cash reserves and the EU recognize that," he told Irish state broadcasters RTE. He emphasized that Ireland hoped to keep as much of the EU-IMF loans on deposit as possible, because that could encourage normal lending at lower rates to resume sooner rather than later.
The IMF-EU fund taking shape would "demonstrate that ireland has facilities available to it to enable it to go to the market ... that Ireland has a last resort," he said.
Associated Press Writers Gabriele Steinhauser and Raf Casert in Brussels contributed to this report.