EU States At Odds On Rescue Idea, Irish Bank Protection Angers UK

Tom Burroughes

3 October 2008

Leaders of European Union member states are at loggerheads over moves by some nations to protect their domestic banks against the financial crisis, while French President Nicolas Sarkozy has distanced himself from a proposed €300 billion ($415 billion) EU bank rescue scheme, according to media reports.

UK prime minister Gordon Brown, meanwhile, is alarmed by the move by the Irish government to protect all savings deposits made by Irish banks, which has already encouraged a shift of money out of the UK and into Irish bank deposits, reports say.

Ireland’s decision to prop up its six biggest lenders by guaranteeing all their debts and deposits was passed into law yesterday, in the face of anger across Europe about the impact that it would have on the EU’s single market. Meanwhile, Greece yesterday proposed more protection for savers.

UK bankers said there were already signs that some Irish lenders were approaching corporate and private banking customers in the UK and encouraging them to move their money.

Meanwhile, France’s Sarkozy voiced doubts about a proposed EU-wide rescue package for banks. “I deny the sum and the principle ,” Mr Sarkozy was quoted as saying of the proposal, put forward by governments such as those of the Netherlands.

Mr Sarkozy had hoped to forge a common front at a summit with his German, UK and Italian counterparts in Paris at this weekend, while encouraging his guests to be open-minded about bold solutions given the gravity of the crisis.

UK officials said that Gordon Brown, UK prime minister, believed national governments had the primary role in resolving the crisis and was opposed to “grand European solutions”.

However, the Dutch government said it would continue to press its idea for a €300 billion ($415 billion) scheme whereby each of the EU’s 27 member states would set up its own rescue fund worth up to 3 per cent of gross domestic product.

Acording to the Financial Times, the EU summit tomorrow is likely to focus on the existing efforts to tighten regulation of ratings agencies and improve co-ordination between supervisors, and a review of market-to-market accounting rules.

One possible face-saving initiative could be to agree on common standards for bank deposit insurance. EU officials believe that harmonising the protection for savers would discourage other member states from following Ireland and offering blanket guarantees to banks.