Anglo Irish Bank woes 'won't bankrupt Ireland'

(BRUSSELS) - Ireland will not be bankrupted by mounting debts in the state-owned Anglo Irish Bank, said the country's Finance Minister Brian Lenihan as he flew into Brussels for talks Monday.

Lenihan told RTE state radio before leaving for Belgium that he was concerned about suggestions that Anglo's debts could end up bankrupting the eurozone member nation.

"That is simply not the case. At all stages the governor of the Central Bank has made clear and I have made clear that the costs are manageable.

"Yes, they are annoying, they are infuriating, but they are manageable."

Like many of its rivals, battered by the global financial crisis, a deep recession and a property market meltdown, the bank was nationalised in early 2009.

Last week, it reported a dizzying pre-tax loss of 8.2 billion euros in the six months to the end of June, on top of 12.7 billion euros for the whole of 2009, the biggest-ever losses in Irish corporate history.

Both the government and the bank's board favour splitting the bank into two -- a "good" and "bad" bank -- at a cost to the state of 25 billion euros.

Other options are to liquidate it progressively -- at an extra cost of four to five billion euros -- or wind it down as soon as possible, which could cost a whopping 45 billion euros.

Worries over Ireland's financial woes were high on the agenda as finance ministers gathered for two-day talks destined to address the fallout from the global crisis by tightening state deficits and the supervision of banks.

The situation of the financial sector in Ireland was at the centre of a meeting between Lenihan and European Union competition commissioner Joaquin Almunia, whose office is looking into state aid and is to deliver a verdict in weeks.

"It was a constructive meeting and the work is proceeding rapidly," said a spokeswoman for Almunia. "No further comment at this stage."

Acknowledging the concern over Ireland but refusing to be drawn on the issue, Luxembourg Prime Minister Jean-Claude Juncker told the media: "I do not want to make a quick comment that could make a stir."

Juncker heads the eurogroup of finance ministers from the 16 countries which share the euro.

Before arriving in Brussels, Lenihan said it was reasonable for people to question whether the impact of the bank's debts could bring down a country.

"It is an entirely reasonable question and we have had to live with this danger since September 2008. We have had to navigate very difficult waters. International conditions have become much more fragile since May of this year. There is general uneasiness in European markets generally.

"We have to hold our nerve. We can hold our nerve and deal with these problems."

He said a clear course had to be charted for the future of Anglo and how it would be "de-risked" in terms of the Irish state and the Irish taxpayer.

"The alternative of letting the country go and the bank go is unthinkable for the government. We have to sustain economic confidence in this country. We can sustain economic confidence."

Earlier Monday, the bank's chief executive Mike Aynsley said in an interview with Ireland's Sunday Business Post that Brussels wanted to wind down the lender.

"The European Commission is saying, 'this bank has dropped 25 billion euros and it doesn't deserve to survive,' and they're right. But you have a dysfunctional banking system," he was quoted as saying.

Prime Minister Brian Cowen warned earlier this week that winding up the bank immediately could cost more than 70 billion euros and that this would not be in the interests of the taxpayer.