Irish extend depositor insurance, force Europe towards action

Earlier this week, Ireland acted to quell depositor fears by extending a version of FDIC to six major Irish banks.  Dublin agreed to guarantee all deposits in a variety of account types while charging the banks for the insurance.  That stopped any hint of a bank run … at least in Ireland.  However, British depositors began moving their money out of British banks and into the now-guaranteed Irish institutions, potentially creating bank runs in the UK.  Now depositor guarantees may have to be enacted throughout the EU:

France heaped pressure on Gordon Brown last night by floating an ambitious plan for a €300 billion (£237 billion) bailout fund to rescue crippled banks across Europe.

As the world held its breath on the fate of America’s $700 billion bank bailout plan, President Sarkozy was seeking the backing of European leaders for his own lifeboat.

Mr Brown also faced demands for action from British banks, furious that the Irish Republic’s unilateral guarantee of all bank savings on Tuesday was robbing them of precious deposits. The British Bankers’ Association, which represents high street banks, said that the move was anti-competitive and that it was raising the issue with Dublin. Some banks would like to see the UK respond with its own explicit guarantee.

The Times of London actually describes a Keystone Kops approach by the French.  After making the proposal, Germany’s Angela Merkel rejected it out of hand, saying she wasn’t going to start handing out blank checks even to the most responsible of banks.  The French then denied that they made the proposal at all, and reversed themselves again but said the €300 billion was the wrong figure.  Then they said it was the right figure, but said that the Dutch had given it to them.  The Dutch responded by saying that they had no idea what France was talking about.

The French proposal will not likely gain much favor from other EU countries.  It essentially bypasses national governments and creates a fund to prop up failing banks.  Somehow, I doubt that Germans have any interest in having their money used to prop up French banks, or Spaniards in bailing out the Dutch, and so on.  One has to wonder why France seems so eager to have this fund created; are French banks teetering on the edge of failure?

This isn’t the first time this year Ireland has presented itself as a thorn in the EU’s side.  The BBA’s anti-competition complaint could get the EU’s attention, but it’s also Orwellian in the extreme.  Ireland has made its banks more competitive, and the BBA wants Dublin to knock it off and operate in a monopolistic fashion.  Perhaps that’s understandable, but the BBA should stop with the Newspeak — “Competition is anti-competitive” — and admit that they want protectionism from competition.

Will Europe pass some sort of bailout?  If the House passes the Senate bill tomorrow, then European nations will probably follow suit to keep pace.  The EU itself will not get hundreds of billions of Euros from its member nations as a slush fund for Brussels to distribute as it sees fit.  This could weaken the entire notion of a supernational EU, especially given Ireland’s independent action.