Lenihan: “if the banking problems in the country are too big for this small country to manage…”

The EU finance ministers meeting in Brussels have denied holding detailed discussions on a potential bail-out for Ireland.  From the BBC report

[Belgian finance minister] Didier Reynders, who chaired the talks, said the situation was not addressed because the Irish government had not requested financial help.

“There’s no reason to ask all the participants for an answer because we did not receive a question,” he said.

And why would they discuss it?  The detailed discussions will be held tomorrow in Dublin.

The European Union Commissioner for Economic and Monetary Affairs Olli Rehn has said the technical talks due to get under way in Dublin tomorrow between the Irish International Monetary Fund, the European Central Bank, the European Commission and the Government, will focus on two main areas.

The first area is the fiscal position and the second is the banking sector and the need for restructuring.

And with the fear of contagion dominating the thinking in Europe, the Irish Finance Minister, Brian Lenihan, may have let the cat out of the bag.

Speaking on RTÉ radio this morning, Mr Lenihan said it would work with its EU partners to address structural problems in the Irish banking system, but he refused to set a deadline for the end of talks, which are set to begin tomorrow.

He said a “short focused consultation” with officials from the European Central Bank (ECB), EC, and International Monetary Fund (IMF) would start in Dublin tomorrow.

Mr Lenihan insisted Europe stood “shoulder to shoulder” with Ireland and that the ECB was “fully behind” the Irish banking system.

“Despite a large range of measures adopted by the Government, Ireland is a small country, and if the banking problems in the country are too big for this small country to manage, Europe is making it clear that they will help and help in every possible way to secure the system,” he said. [added emphasis]

But why wouldn’t the Irish Government already know how big the problem was?

In the Guardian’s second day of live-coverage of the crisis, a short note from Henry McDonald may have hinted at the answer

10.04am: Henry McDonald, our Ireland correspondent, has also been in touch with some worrying news. He’s hearing that the Irish banking sector might be in even worse shape than thought.

From Henry :

“Irish government sources said today that the size of the rescue package for Ireland’s banking system has been underestimated because one of the Irish banks had undervalued the amount of money needed to save it.

“They said the scale of the cash injection needed to shore up the Allied Irish Bank was even greater than what the financial institution had first told the government.

“It was the mounting costs of the bank rescue plan that have alarmed international bond markets and prompted the European Union towards a bail out which Ireland has been resisting, they said.”

Although I’m not sure if that means it’s in even worse shape than the Irish government have admitted so far…

Still everyone’s hero, Robert Peston has been looking at the potential international damage.