EU finds fault with blanket deposit guarantee

AMSTERDAM (Reuters) - European Union Competition Commissioner Neelie Kroes said on Sunday there was a discriminatory element to unlimited guarantees on bank deposits and that she expected Ireland to modify its guarantee plans.

Ireland drew criticism among some European countries this week by promising to guarantee all deposits in Irish banks, prompting some depositors in Britain to move savings to branches of Irish banks.

"We are now in close contact. My people were in Dublin Friday and Saturday and returned with reports that changes will be made," Kroes told Dutch TV, noting there was a "discrimination element" in a blanket guarantee.

"A guarantee without limits is not allowed ... (we expect) that it will be brought into a form for which we can together state that it is in line with the treaty," she said.

Peter Mandelson, EU trade commissioner until his appointment to Prime Minister Gordon Brown's Cabinet on Friday, told a newspaper in an interview on Sunday that such moves by Ireland and Greece could lead to market distortions.

Greece has also moved towards guaranteeing all deposits, but a senior official there has said it was more of a "political commitment" but not a plan to change legislation that would require financial backing.

(Reporting by Niclas Mika and Foo Yun Chee; Editing by Erica Billingham)