BRUSSELS, 6 oct 2008 (AFP) - Irish Foreign Minister Micheal Martin on Monday defended his country's decision to guarantee deposits in six big Irish banks, insisting the measure was not disproportionate given the circumstances.

'This is not a free ride for the banks, there is a commercial rate to be paid for the guarantee,' he told reporters in Brussels before addressing a European parliamentary committee.

'It is difficult to understand how anyone could judge our actions to be disproportionate' at a time when 'by any definition we are now entering unchartered territory.'

Last week Ireland passed an emergency law giving a two-year blanket guarantee to Allied Irish Bank, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.

The guarantee, estimated to be worth over 400 billion euros (563 billion dollars), safeguards retail and commercial deposits, as well as bonds, for two years. It is designed to protect Irish banks amid the global economic turmoil.

The move upset many in Europe as it is aimed at just six Irish banks that could now attract funds from nervous depositors whose banks, Irish or otherwise, have not done the same.

German Chancellor Angela Merkel was one of the move's strongest critics of Ireland's go-it-alone plan.

Nonetheless the German government swiftly took similar measures, guaranteeing all bank savings thanks to the biggest bank rescue in the country's history, as the world financial crisis showed no sign of easing.

EU Competition Commissioner Neelie Kroes, speaking at the same time to another committee, said the Irish guarantee was different from the German version, which the European Commission has said seems in line with EU competition rules

One of the differences is the 'issue of discrimination' as only the six banks are included. The Irish guarantee also extends beyond bank deposits.

However Kroes added that she welcomed signs that the Irish were set to apply the scheme 'to other banks with significant operations in Ireland.'

'I am confident that with some fine-tuning the Irish scheme could be put in line with EU policy,' she added.

Earlier, European Commissionspokesmen rejected suggestions that EU competition rules were being effectively frozen as member states scramble to shore-up their ailing finance groups with scant regard to their fellow EU nations.