Wednesday, October 08, 2008

Neelie 1 – Ireland 0

Ireland's €400 billion-plus bank guarantee scheme, we are told, can't be finalised without the approval of the European Union, but Irish Prime Minister Brian Cowen plans to have a draft of the proposal ready later in the week.

However, the finished proposal will not be ready to be put before the parliament until 15 or 16 October, when the parliament will also be debating the government's 2009 budget, which will be unveiled on 14 October (the day before the European Council). Cowen told the Irish parliament that "contacts are ongoing" with the financial regulator, the central bank of Ireland, and the EU. "Issues are currently being factored into the draft of the scheme," he said.

I looks like Neelie has had her way.

However, in effect, Ireland no longer has an unlimited guarantee - and never did have. On the other hand, with Darling's partial nationalisation of our banks, these UK institutions have what amounts to an unlimited state guarantee, giving their customers roughly the same status as that enjoyed by Northern Rock investors.

Once this interesting situation is absorbed by the good people who rushed to put their money in Irish (or Post Office) accounts, will we suddenly see reversal in the flow of funds? And if the good people of Europe also wake up to what is happening, can we see a similar rush of money from over the Channel? And if that does happen, what price banking stability?

  • Other posts on the financial crisis here.