By John O'Donnell
BRUSSELS (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 gradually withdraw the assistance, but Irish Prime Minister Enda Kenny sought to persuade ECB President Jean-Claude Trichet at a meeting of EU leaders not to cut short the support.
"I reminded him of the importance of it," Kenny told reporters when asked on Friday about extending liquidity support to Irish banks over the 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 row about the country's low company 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 those 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 now be up to finance ministers to decide on any changes to Ireland's bailout programme after the health checks on lenders were public.
BLANK CHEQUE
Kenny's bid for longer term assistance from the ECB is unlikely to succeed. Banks in the euro zone must now 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 check 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.
The Irish government is also trying to persuade the ECB to allow it to hand losses to some senior bondholders 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)