The European Commission has approved an Irish guarantee program for banks' short-term debts until Dec. 31. In return, the Irish government will charge higher fees and ensure the banks uphold behavioral and reporting commitments.
These undertakings will provide an incentive for banks to refinance themselves from the markets without state support to the maximum possible extent and so limit distortions of competition, the commission said Tuesday.
Ireland's banks were crippled by bad loans when the financial crisis triggered a crash in the country's property market. The Irish government has been forced to pump millions into the banking system to recapitalize banks. "The guarantees are necessary to ensure continued access to funding for Irish banks in the coming months, thereby contributing to financial stability in Ireland," the commission said.
The program covers commercial paper, certificates of deposit, interbank deposits, corporate deposits, and other debts with maturity of less than three months issued between Sept. 30 and Dec. 31, 2010. A similar program expires at the end of this month.
My Takeaway: Irish banks still cannot fund themselves without the state. The periphery of the EU is still suffering and does not look to be getting better. I keep hearing that European financials are recovering, but I fail to see the evidence of it. The increase in sovereign yield, this event, the need for German bank mergers and Deutsche Banks warning point to continued weakness. One last thing: "refinance themselves from the markets without state support"? Really? What are guarantees?
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