PARIS VISIT:FRENCH PRESIDENT Nicolas Sarkozy has backed Ireland's guarantee plan and floated the idea of a EuropeanUnion-wide bailout scheme, writes Lara Marlowe in Paris.
French government figures insisted yesterday that there was no fully worked-out proposals for the scheme and they rejected the price tag of €300bn ($422bn, £238bn) that some German officials have attached to it.
They attacked the French idea, arguing it was for individual states to handle their own banking bailouts. Officials in London are also sceptical, but there could be support from other quarters.
The idea is believed to have been raised initially by the Dutch government.
The French idea is not necessarily for a single EU bailout fund. It could be a question of each member state agreeing to set up its own fund according to a common model, say officials.
"This is not an idea for some kind of Paulson plan because we don't have the same magnitude of toxic assets as the US," said a senior official in Paris.
But France is concerned that not all EU countries are in position to bail out a failing bank, especially if they are small economies or have already undertaken a rescue operation.
Christine Lagarde, finance minister, floats the idea of a fund in an interview today, telling Handelsblatt, a German newspaper: "We in the EU generally agree we need to support the financial sector. That poses the question: Do we need a European shock-absorption fund to rescue banks? That's only an idea. We need to discuss that."
Until recently, France has publicly shown little interest in a co-ordinated rescue plan beyond tightening up EU financial markets regulation over the longer term.
Paris initially dismissed the request of Hank Paulson, US treasury secretary, for Europe to set up its own rescue fund last month.
Only yesterday, François Fillon, prime minister, set out a unilateral approach, vowing to prevent the collapse of any French bank.
Mr Fillon said Paris would "exclude no solution" required to save a bank from failure and indicated it would take stakes or even nationalise institutions in return for recapitalisation.
"We will give ourselves the means to prevent a major financial catastrophe," he said in an interview with Les Echos newspaper. "There will be no failure."
Mr Sarkozy, acting president of the European Council, supports Ireland's bank guarantee plan, said Taoiseach Brian Cowen after meeting him at the the Élysée Palace yesterday.
" I think the president understands precisely the reasons why the Irish Government had to act and the circumstances in which we found ourselves."
Responding to reports that the Irish plan "infuriated" British prime minister Gordon Brown, because it puts pressure on him to produce a similar plan, Mr Cowen said he told Mr Brown of the plan on Tuesday afternoon.
"Prime minister Brown obviously would be reflecting some concerns that are being raised by banks in Ireland who are not incorporated in the State," Mr Cowen explained, referring to British banks operating in Ireland.
"Each regulatory system, every state, is responsible for its own banks that are incorporated in their own respective states," the Taoiseach continued.
He said the British banks in Ireland were "excellent" and are "making a good contribution to the Irish economy." Their deposits "are obviously safe and sound" despite being "part of a wider group that are not incorporated within the State".
On the issue of State aid, Mr Cowen said the Irish Government's decision "has a full price" and "takes account of commercial realities . . . This is not for free. This is a State guarantee which will be paid for by the sector."
- (Additional reporting: Financial Times service)