Lenihan: 'unorthodox'

The government's rescue of the banks has left Irish taxpayers holding all the risks but with no chance of recouping the costs, a senior member of the Organisation for Economic Co-operation and Development (OECD) has warned.

In the first independent assessment by an international arbiter, the influential body has said the government's "unorthodox" package to bail out banks should have included the Irish government taking, at a minimum, small shareholdings of over 10% in the six Irish banks that were rescued last week. This would have helped taxpayers recoup losses.

Peter Hoeller, head of division at the OECD and an expert on a group of European countries including Ireland, said the bailout was "a matter of concern for the OECD" because of the unaccounted cost and the potential "havoc" it could wreak on other European banks.

He said the cost of the guarantee was unlikely to be recouped from the Irish banks, and the package would not be a template for the rest of Europe.

The comments came as the Sunday Tribune identified the €127m hidden cost to Irish taxpayers over the next two years, as the cost of the rescue package increases the interest charge on the national debt.

Last week's guarantee led to an exceptionally big rise in the interest rate that the Irish state has to pay to service its rising debt, with benchmark Irish government bonds rising by 12 to 15 basis points against the equivalent benchmark debt in Germany. Even a few notches of increase can lead to a huge rise in service costs.

In 2009, the first year of the guarantee, it pushes up payments on the national debt by €58m, and by €69m in 2010. The cost of the guarantee would soar by huge amounts if a bank here were to use it, said Alan McQuaid, chief economist at Bloxham Stockbrokers.

Senior industry experts also predicted that outside banks may be encouraged to buy ailing Irish lenders.

Hoeller said the Irish banks needed to get liquidity to cope with the downturn of the housing market.

"The rescue package probably does solve that issue because it does solve the interbank issue," he said.