CREDIT FAMINE; CREDIT CRUNCH CRISIS Government to rescue banks in EUR12bn bail out.

Byline: BY AINE HEGARTY POLITICAL EDITOR

THE Government is expected to announce a EUR12billion rescue plan for Irish banks in coming days, it emerged last night.

Brian Cowen hinted that the scheme is at the "advanced stages" as the Governor of the Central Bank held crunch talks with Finance Minister Brian Lenihan after share prices reached new lows for the second day in a row.

The move came after Labour leader Eamon Gilmore told the Dail Ireland is in the grip of a "credit famine" with small and medium businesses starved of cash.

He claimed hundreds of small firms would go to the wall "within a matter of days" with the loss of thousands of jobs unless action is taken immediately.

Mr Cowen said: "The Government is at an advanced stage on all of these matters. There are commercially sensitive matters. I am constrained in terms of what I can say at this particular time."

And the Taoiseach insisted injecting cash into the main banks was not the only solution.

He added: "The Government is looking at all options and seeking to ensure we come up with a situation where lines of credit remain available to Irish business going forward. The idea that bank recapitalisation is the solution to that problem is not the full picture."

Fine Gael leader Enda Kenny said: "Small businesses everywhere are in crisis. They can't get credit, their overdrafts are being called in and they're going to have to shut up shop very shortly. This is a crisis.

"Machinery is being seized. Business just cannot operate in those circumstances.

"The sector faces an absolute jobs decimation."

Eamon Gilmore added: "There is a credit famine in this country because businesses are being starved of credit. Unless specific actions are taken within a matter of days, the small business sector will implode and unemployment levels will soar."

He called on banks to request funding from a EUR15billion fund set up by the European Investment Bank, as financial institutions from 22 other EU states have done.

But Mr Cowen pledged that whatever can be done to assist Irish businesses will be done. He said: "The Government stands ready to make decisions which are in the interests of the Irish economy."

Speculation about the EUR12billion rescue plan came after Anglo Irish Bank and Bank of Ireland shares plunged further amid fears about their level of bad debt.

91 cent

FOR the second day in a row shares in an Irish bank fell below the EUR1 mark as Anglo Irish plummeted by 18 per cent to 91c - their lowest in 10 years.