Ireland's banks 'up for sale'

EIRE flag and euros

The fallout from Ireland's economic meltdown continued this week, as its banks were effectively put up for sale and Prime Minister Brian Cowen was forced into promising an early general election.

Irish central bank governor Patrick Honohan said on Tuesday: "They [the banks] are for sale as far as I am concerned. I've been an advocate for a number of years for small countries to have foreign owners for their banks."

More than €10 billion of capital is expected to be injected into top lenders Allied Irish Banks, Bank of Ireland and nationalised Anglo Irish, with billions more available if needed, in the hope that overcapitalisation will keep them afloat.

Dublin said it will carry out more stress tests to determine how much capital banks need, while Allied Irish could follow Anglo Irish in being fully nationalised, analysts reckon, as any more capital will leave it about 95% state-owned.

Despite Sunday's news that Ireland had finally accepted a bail out markets across Asia and Europe were down at the start of the week.

The FTSE 100 fell 52 points to 5680 on Monday, with Royal Bank of Scotland and Lloyds Banking Group the day's biggest fallers amid concerns over their exposure to Ireland.

Will Hedden, sales trader at IG Index, highlighted investors' concerns: "RBS has a risk worth a dizzying 113% of the company's total net asset value, with Lloyds at 61%."

Meanwhile, the Financial Services Authority contacted the bosses of Britain's major lenders on Monday to establish the most up-to-date picture of their exposure to Ireland.

Hedden added political instability across the Irish Sea was compounding fears, while "the risk of contagion still lingers over European markets, with traders now eyeing up the next sacrificial lamb".

Things looked no better by Tuesday when artillery fire between North and South Korea also weighed on markets.

Investors remain concerned that other countries with high levels of debt, in particular Portugal and Spain, may also have to seek financial help. Meanwhile, the EU and the International Monetary Fund (IMF) agreed to pay Greece the latest instalment of a €110 billion rescue package on Tuesday.

The Irish government is due to publish its four-year budget plan on Wednesday. This will set out the €15 billion in spending and benefit cuts and tax rises. The first €6 billion will take effect next year.

Cuts already imposed this year have proved very unpopular in Ireland. The bail out and promise of further austerity has compounded worry and anger, with locals marching on the Irish government building and clashing with police this week.

Premier Brian Cowen faces ongoing calls for his resignation following his handling of the economy and subsequent denial of the need for a bail out. There have also been calls for an immediate general election, particularly from opposition parties Fine Gael and Labour.

Defiant Cowen said he will stay in office until parliament passes his budget next month and then call an election in the New Year.

"We believe that there is a clear duty on all members of Dail Eireann [lower house of parliament] to facilitate the passage of these measures in the uniquely serious circumstances in which we find ourselves," he said after an emergency meeting of cabinet members.

"The political and financial stability of the state require no less. It is my intention, at the conclusion of this budgetary process with the enactment of the necessary legislation in the New Year, (to) then seek a dissolution of Dail Eireann and to enable the people to determine who should undertake the responsibilities of government in the challenging period ahead thereafter."

However, it is still possible for Cowen to be forced from office before the New Year.

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