BRUSSELS REACTION:EU COMPETITION commissioner Neelie Kroes has made a thinly veiled attack on the Government's plan to offer a €400 billion State guarantee to Irish-owned banks.
Ms Kroes, who will ultimately decide whether the plan is legal, said yesterday leaders needed to pick up the telephone and co-ordinate their response with Brussels rather than go ahead on their own.
"I would like to plead to national governments today not to act unilaterally, but rather to continue their practice of consulting the commission when they are confronted with problems that may require state aid to the banking sector," she said.
Ms Kroes praised the British authorities for the very close co-operation that they had shown in the bailout of the Bradford Bingley bank but pointedly refused to comment on the co-operation or non-co-operation she received from the Government.
EU officials clarified their initial response to the State guarantee plan when they said on Tuesday that they had been informed on Monday night about the rescue plan.
In fact, the first time the commission was informed was early on Tuesday morning, shortly before Minister for Finance Brian Lenihan made his public announcement.
The big fear in Brussels is that the Irish plan, which seems to favour Irish-owned institutions over the Irish subsidiaries of foreign-owned banks, could provide an advantage to the six domestic banks covered by the scheme.
One EU official, who did not want to be named, said the approach could inspire a "beggar my neighbour" attitude.
Britain has expressed serious concern about the Irish scheme, which covers the UK-based subsidiaries of Irish-owned banks that compete with British rivals that are not covered by the guarantee.
Trade commissioner Peter Mandelson strongly criticised the Irish guarantee plan at the weekly meeting of the college of commissioners yesterday while his Irish colleague, internal market commissioner Charlie McCreevy, defended the Government.
"Member state governments don't have the luxury of waiting forever in a day to make up their minds about critical matters," said Mr McCreevy, who noted it was member states' responsibility in the absence of an overarching solution to put rescue plans into effect.
But Ms Kroes, who refused to answer detailed questions on the Irish plan, warned that Europe should not follow the example of the 1930s when governments decided to go national and close their own borders.
"Protectionism was not the solution at that time, as we all very well know.
"Let us not make the same mistake twice," said Ms Kroes, who also announced a new investigation into a German bailout plan for WestLB bank.
In April the EU approved a €5 billion bailout of the bank led by the state of Northern Rhine-Westphalia. It will now begin an in-depth review of this decision.
Both Ms Kroes and European Commission president José Manuel Barroso strongly rebuffed criticism from some states, in particular France, that EU competition and state aid rules are too restrictive and could hamper Europe's response to the financial crisis.
"The equitable application of our competition and state aid rules is indeed a fundamental element to establish and maintain trust between market players and member states.
"They guarantee a level playing field and help ensure the future viability and stability of companies concerned," said Mr Barroso, who nevertheless said there needed to be more consistency in the application of state-backed banking deposit insurance schemes.
EU officials said the Irish State guarantee plan would probably be on the agenda of a planned mini-summit of EU leaders this weekend. The British, German, Italian and French leaders are expected to meet as well as key EU officials such as ECB president Jean-Claude Trichet and Jean-Claude Junker, chairman of the Eurogroup.