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  • Ireland changes bank guarantee to meet EU rules

    BRUSSELS (AP): EU regulators are likely to clear Ireland's bank guarantee after the country made broad changes to the plan, the European Commission said on Monday.

    The EU executive said it now stands as the only neutral judge of EU governments' plans to pump billions into the banking sector.

    Ireland _ with banks that loaned heavily during a housing boom _ was the first European country to guarantee all bank deposits and interbank loans for six Irish-based lenders.

    Britain and others at first complained this would attract money away from their nations' banks without a guarantee to Irish rivals. But Britain, Germany and others now plan their own guarantees to shore up troubled banks.

    Under EU pressure, Ireland has agreed to cover major foreign-based banks operating in the country. It also agreed to create a pricing program levying a fee on banks to pay for the guarantee, and to set safeguards to stop banks from profiting from a plan that now limits their business and balance-sheet growth.

    EU Competition Commissioner Neelie Kroes on Monday warned that her office was now the ``only neutral referee'' checking that billions of euros (dollars) backing up banks won't damage competition across the economy.

    ``There will be problems if those measures are discriminatory or could cause negative spillovers in other member states by, for example, diverting financial flows,'' she said.

    Under European Union state aid rules, governments can only fund private businesses in a strict set of circumstances to make sure they don't give one company an unfair advantage.

    The current crisis puts those rules at risk with four EU nations _ France, Germany, Italy and Britain _ calling last week for more flexibility.

    Kroes defended the EU's state aid rules by saying they exist to keep the economy functioning well and governments ``have to rise above the impulse for unilateral'' action that could cause chaos.

    EU antitrust regulators say they are already flexible because they quickly cleared emergency government rescues of mortgage lenders Bradford & Bingley and Hypo Real Estate, as well as Denmark's banking guarantee.

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