–Adds Irish government reaction, market reaction

BRUSSELS (MNI) – The European Commission approved the Irish
government’s application to provide short-term guarantees to its banking
sector until the end of the year, extending a scheme already in place
that was due to expire at the end of this month, the Commission said in
a statement.

“The European Commission has approved until December 31, 2010 a
guarantee scheme for credit institutions in Ireland, covering certain
short-term liabilities,” the EU executive stated.

The Commission said it concluded that “the scheme is an adequate
means to remedy a serious disturbance in the Irish economy and is as
such compatible with the special state aid rules put in place at the
beginning of the global financial crisis.”

The Irish scheme has been in place since November 2009 and covers
credit institutions, commercial paper, certificates of deposit,
interbank deposits and corporate deposits and liabilities with maturity
of less than three months issued between September 30 and December 31
2010.

Maturities longer than three months are protected by a separate
scheme, which has already been approved and is in place until December
31 2010.

The country’s finance minister, Brian Lenihan said the scheme would
“continue to guarantee a broad range of short-term and long-term
liabilities and deposits to the end of 2010.”

He said the Irish banking system needed the support to continue to
meet the country’s credit needs and foster the recovery.

“The supply of credit is essential to protect and support the
creation of jobs,” Lenihan said.

Irish 10-year bond spreads were trading this afternoon around 15
basis points tighter compared with the benchmark German Bund, after
reaching a record high of 418 basis points on Monday.

The spread has widened dramatically in recent weeks as investors
worry about the total costs of Ireland’s banking sector problems, which
is still unknown, and the ability of the government to bring the budget
deficit under control.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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