MercoPress. South Atlantic News Agency

Ireland implements stand-by rescue plan of 400 billion Euro

Prime Minister Brian Cowen

Ireland's Prime Minister Brian Cowen defended a radical 400 billion Euro state move to shore up its financial system and in the continent France, Belgium and Luxembourg bailed out a second bank .

Cowen said Tuesday the government had to make the move, which safeguards all deposits, bonds and debts in six banks and building societies for two years. "The option of doing nothing, of not making a move would put at risk the entire stability of the Irish financial system," he told the Irish parliament. Labour leader Eamon Gilmore said the banks had been handed a blank check. Mr Cowen insisted: "I have not handed over any money to any bank. "I have provided the reputation of this state to the banks to get access to funds so the economic life of this country can continue. That is what was necessary." "I could not as Taoiseach absolve myself of the responsibility of making the decisions." Strict terms and conditions will be attached to the agreement, which will also carry a hefty charge for the banks, according to the government. The deal, which will give the banks access to credit and lending across Europe, immediately shored up confidence among traders in the stock exchange in Dublin with the Iseq closing up 8%. Opposition parties called for tight regulation under the scheme while Ireland's biggest union, Siptu, said the six banks should be charged a premium rate for the guarantee. The banks covered are Allied Irish, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society. That move means that the Irish government has decided that the Irish taxpayer will now provide a guarantee for up to 400bn euro of liabilities. The Republic of Ireland's Department of Finance said that the scheme would cover all UK branches of the financial institutions, but that negotiations were under way with the British authorities on safeguards that might be provided to any of the six banks' subsidiary companies in the UK. Finance minister Brian Lenihan said: "If funds are not secured by the Irish banks, it will be a very, very serious matter for the economic life of this community. "Every bank, every worker, everyone knows how short those funds have been in the last year. "If they dry up entirely, then that is very serious for Ireland. We must take action to secure the stability of our banking system and that is what the government decided to do." Michael Fingleton, chief executive of the Irish Nationwide Building Society, said he accepted the move could give Irish banks a competitive advantage over their UK rivals. "Other banks will lend to them, they will not be holding excessive liquidity. Therefore, there will be money available for the greater economy and productive purposes, and indeed for young people to buy their houses," he said. The Northern Bank and Ulster Bank have moved to reassure depositors about their stability and credit-worthiness. Neither are covered by the Irish government guarantee, but both have issued statements intended to reassure customers their money is safe. The Northern, owned by the Copenhagen based Danske Bank, emphasizes it is part of a strong and solid European banking group with a very strong credit rating. Ulster Bank has pointed out that it is owned by the Royal Bank of Scotland - one of the largest banks in the world in which shareholders recently invested an additional £12bn in capital. Meantime Belgium's Dexia has become the latest European bank to be bailed out as the deepening credit crisis shakes the financial sector. After all-night talks the Belgian, French and Luxembourg governments said they would put in 6.4 billion Euros to keep it afloat. Shares in the Belgian-French bank had fallen 30% on Monday before being suspended on Tuesday as the bail-out was announced. This is the second bank rescue in days by Belgium and its neighbours. On Sunday Fortis bank was partly nationalized. Dexia is the one of the world's largest lenders to local governments, but has run up significant losses in its US operations. In a statement the French government said the rescue was necessary to "guarantee continuity of funding for local authorities". The Belgian government and Belgian shareholders will invest 3 billion Euros; the French government will also invest 3 billion Euros via its state investment arm, while Luxembourg will put in just under 400 million Euros. Yves Leterme, the Belgian prime minister said: "Given the crisis situation around the Dexia group we took concrete and correct decisions to reinforce Dexia's health so that the group can face the events playing out in financial markets". Last month Dexia announced it was overhauling its loss-making US bond insurance unit, Financial Security Assistance - which made a loss of 330 million US dollars in the second quarter of this year because of the sub-prime housing crisis. The group has also been hit by the collapse of the US investment bank Lehman Brothers. Dexia was created in 1996 from the merger of two banks which specialized in local government funding in Europe - Credit Communal de Belgique and Credit Local de France. It was one of the first cross-border mergers in the European banking sector and currently had 5.5 million customers in Belgium, Luxembourg, Slovakia and Turkey.