IRELAND extended its guarantee for short-term bank liabilities, including corporate and interbank deposits, as expected yesterday as the government sought to reassure investors about its financial position.
The move came as Irish bond spreads hit fresh peaks amid renewed jitters about the health of the European banking sector piling more pressure on Ireland as it seeks to hammer out a deal with the European Commission over the future of nationalised lender Anglo Irish Bank.
Dublin saved Anglo from collapse two years ago when it agreed to guarantee the liabilities of the entire banking sector and finance minister Brian Lenihan said yesterday that guarantee would be extended until the end of the year for short-term liabilities.
With Ireland once again at the centre of European debt fears amid concerns over the escalating cost of bailing out Anglo Irish, there were real fears corporate depositors would pull funds out of Irish banks if the guarantee had been left to expire at the end of this month.
Analysts said while the guarantee kept Ireland on the hook for its struggling banks, it at least gave them breathing space ahead of a crucial month in which they need to refinace around €26bn (£21.5bn) of funding.