UPDATE 1-Ireland makes fresh plea for longer ECB bank lifeline

* Irish premier tells ECB’s Trichet bank support important

* Kenny says Gallic tax spat with Sarkozy over for now

* Concerns about bank bill mount on eve of test results
(Adds PM saying ECB will not force quick sale of Irish
assets)

By John O’Donnell

BRUSSELS, March 25 (Reuters) – Ireland’s prime minister has
made a new plea to the president of the European Central Bank
to extend its lifeline to the country’s banks, giving Dublin
more time to tackle problems many fear are worse than
forecast.

The ECB, which is supporting Irish banks by lending them
money they would normally borrow from peers, wants to withdraw
the assistance gradually, but Irish Prime Minister Enda Kenny
sought to persuade ECB President Jean-Claude Trichet not to cut
short the support.

“I reminded him of the importance of it,” Kenny told
reporters at a meeting of EU leaders on Friday when asked about
extending liquidity support to Irish banks over a longer term.

“I said obviously when the bank stress test results become
known next week we will be back again to have further
discussions with the ECB.”

Concern that Irish banks need more than the 35 billion
euros already set aside to prop them up under an EU-IMF bailout
pushed a dispute about the country’s low corporate tax and its
bid for cheaper financial aid off the agenda at an EU summit on
Thursday and Friday.

“The question of corporation tax was not up for discussion
at all,” said Kenny. “In respect of Mr. Sarkozy … the Gallic
spat we had the last has concluded pro tem (for the time being)
and we shook hands several times.”

But problems at the nation’s banks, which have forced the
ECB and Irish central bank to ramp up short-term lending to
Irish lenders to more than 150 billion euros, could make
Ireland an urgent priority for the EU within days.

With the results of bank stress tests not ready until next
week, Kenny was unable to soothe worries about a larger rescue
bill in discussions with German Chancellor Angela Merkel and
French President Nicolas Sarkozy.

Late on Thursday, the president of the European Council,
Herman Van Rompuy, said it would be up to finance ministers to
decide on any changes to Ireland’s bailout programme after the
health checks on lenders were made public.

BLANK CHEQUE

Kenny’s bid for longer-term assistance from the ECB is
unlikely to succeed. Banks in the euro zone must repay their
ECB loans within as little as a week and no longer than three
months. Rather than softening terms, the central bank wants to
make them tougher.

Whereas now the ECB effectively signs a blank cheque when
banks request credit, it wants to reimpose a cap on the amount
they can borrow and resume holding competitive auctions.

It wants to wean banks in Ireland, Portugal and Greece off
that assistance because emergency measures that make money
easily available for banks hamper its efforts to control the
economy with interest rate hikes.

Kenny said the ECB would not insist that Irish banks
quickly sell off their loan books to reduce their reliance on
ECB funding.

“The ECB now accepts that it would not be prudent to have
immediate fire-sales of assets which would lead to further
recapitalisation at high interest rates,” Kenny told Irish
state broadcaster RTE.

Analysts estimate that Irish banks will have to hive off
around 70 billion euros in assets to get their loan-to-deposit
ratio down to around 122 percent by 2013 under the EU-IMF
bailout.

A fire-sale into a depressed market would trigger more
capital losses that the state would have to fill.

The Irish government is also trying to persuade the ECB to
allow it to make some senior bondholders take losses in Irish
banks, a move many both in Brussels and other European capitals
fear could prompt a new investor scare and wider contagion.
(Additional reporting by Marc Jones in Frankfurt and Carmel
Crimmins in Dublin, editing by Mike Peacock and Dan Grebler)

UPDATE 1-Ireland makes fresh plea for longer ECB bank lifeline