KEY ELEMENTS of the Government’s new rescue plan for Anglo Irish Bank are already being questioned in Brussels as EU competition commissioner Joaquín Almunia awaits formal submission of the proposal from Minister for Finance Brian Lenihan.
Separately Jean-Claude Trichet, president of the European Central Bank, has proposed that eurozone members that break the region’s rules on public finances should be excluded temporarily from Europe’s political decision-making.
The controversial suggestion by Mr Trichet, in an interview published in the Financial Timestoday, would be part of a "quantum leap" in the governance of Europe's monetary union, needed to prevent a future Greece-style economic crisis.
It is understood Mr Almunia may seek clarification on whether Anglo’s “funding bank”, which will operate alongside the “asset recovery bank”, should be allowed to take new deposits from customers. Further questions surround the State’s ultimate financial liability to Anglo, something the Government will not specify until October.
Mr Almunia has said he views the new plan positively, but maintains “important” aspects of the plan will have to be clarified before the EU executive can give the go-ahead to the proposal.
Some but not all of these concerns are understood to centre on the funding arrangements for the two entities and the extent to which they would be guaranteed by the State.
Further uncertainty surrounds plans for the “funding bank” to accept new deposits, an institution described by Mr Lenihan as a Government-backed guarantee specialist deposit bank. Owned by the Minister, this entity is designed to provide a secure home for Anglo’s existing depositors and “any new customers” who wish to lodge funds in it. The “funding bank” will not, however, engage in any new lending.
The precise nature of Mr Almunia’s concerns remains unclear. In theory at least, the fact that the “funding bank” will have the benefit of State backing while competing for deposits with banks who engage in lending may raise competition concerns.
While such questions remain to be resolved, the new plan is seen in Brussels as a “neater” resolution of the State aid questions surrounding the rescue of Anglo. In the period since its nationalisation in January 2009, the bank has already received some €25 billion in emergency recapitalisation from the State.
Meanwhile, Mr Trichet’s comments highlight how he is trying to shape the debate on eurozone reform, which is expected to culminate in the coming weeks when Herman Van Rompuy, president of the European Council, reports on how to revamp the rules.
Following Greece’s public debt crisis in May, the bank has been at the forefront of lobbying for tougher rules – backed by sanctions – and the independent monitoring of public finances.
The Frankfurt-based bank has rejected the idea of a eurozone member being thrown out. But Mr Trichet said the “temporary suspension of voting rights is something that should be explored”. His proposals could run into trouble with member states, especially as it is not clear that the withdrawal of voting rights would be possible without changing EU treaties.
German chancellor Angela Merkel has called for similar measures, but most other EU leaders are against it as they do not want to reopen the treaties. In Ireland's case, this would require a referendum – a step the Government would be loath to take. – (Additional reporting: The Financial TimesLimited 2010)