Britain may not be able to avoid bailing out the Irish
Mats Persson 11:45am
This morning, it sounds as though Ireland has finally buckled to demands that they accept a bailout from the EU. Their central bank governor, Patrick Honohan, has said that he expects a
"very substantal loan" from Europe – although the details, and debtees, are yet to be clarified.
In the UK, of course, backbench MPs and others have been quick to condemn any move which would force British taxpayers to cough up cash under the EU’s various bail-out arrangements. Only
problem is: the UK may not have a choice. The part of the eurozone bail-out package which Britain could be underwriting to the tune of £6-7 billion - the so-called European Financial
Stability Mechanism – is not protected by a UK veto. This means that the mechanism can be triggered by a majority vote amongst EU ministers, and that the UK could be outvoted.
This comes courtesy of Alistair Darling who signed the deal during that super-weekend back in May, when the UK Coalition government was being formed and the EU/IMF agreed its shock-and-awe
€750 billion euro rescue package, bending various EU laws to breaking point in the process (to be fair to Darling the decision to establish the ESFM was also based on majority voting so George
Osborne may not have fared much better).
That such a decision – which effectively makes taxpayers in one country liable for the debt of a government over which they have no democratic control – should be subject to majority
vote in a forum consisting of 27 different member states is mindboggling, and it takes the EU’s democratic deficit to a whole new level. But that’s what the Coalition government now is
facing.
Adding to the likelihood of British involvement is that the EU’s second bazooka, the €440 billion European Financial Stability Facility (EU leaders aren’t known for their great
imagination when it comes to naming these things), of which the UK is not a part, is subject to unanimity and therefore more difficult to get off the ground quickly.
And some EU countries are kicking up a fuss. The Finnish government for example – historically the poster boy for a good European – has said that it’s not prepared to dish out any cash to Ireland unless there’s an absolute guarantee
that it’ll get it all back – which is a tricky thing to ask for. Other governments who are meant to contribute are themselves one step away from bankruptcy.
Of course, temporary loans to Ireland or anyone else will do nothing to solve the eurozone’s inherent flaws – which are well documented by now. But let’s not kid ourselves: the UK
is hugely exposed should the Irish economy sink, irrespective of how difficult we all find it to prop up a single currency which we knew all along was heading for trouble.
Leaving aside the need for Ireland to clean up its banking system and the accompanying too-big-to-fail discussion – admittedly two big issues to leave aside – the Treasury is therefore
right to look at ways to assist Ireland bilaterally. If anything, bilateral rescue arrangements between similar economies have a far better chance to end happily than messy multilateral bail-outs
which come with ideologically fuelled demands (i.e. German or European Commission demands for raising the corporate tax rate which would be economic suicide for Ireland). The joint loan given by
the Nordic countries to Iceland when that country hit the wall in 2008 could be one model.
In its own strange way, a UK-Irish deal could also serve to strengthen the UK’s position in Europe. But alas, the terms and conditions for UK taxpayer-backed loans to Ireland no longer rest
solely with the British government.
Mats Perrson is director of Open Europe
Previous
GDT
November 18th, 2010 12:44pm Report this commentDon't panic Mr Mainwaring!!!!
PayDirt
November 18th, 2010 12:48pm Report this commentWell let the Bank just print some more Sterling and lend it to Ireland. That’s the way this whole thing is headed anyway, may as well start sooner rather than later. It’s interesting to consider tactics and at what point does UK Govt print more Sterling to get the most bang for the buck: when the Irish are starving, begging or just asking nicely? At least they better start the printing presses before the riots hit the streets and otherwise valuable assets get burnt down. Of course in the end we’ll be wheelbarrowing the worthless notes to Tesco’s the pay for our bread and water, but it’ll be interesting to see the route that’s taken to arrive there.
Yam Yam
November 18th, 2010 12:54pm Report this commentOr Britain could just turn round to the EU and say "rearrange this sentence: forth go multiply and".
MarkP
November 18th, 2010 12:54pm Report this commentThere is another reason, and that is the exposure of British banks to peripheral sovereign debt. In short, the UK govt is not going to bailout Ireland, it is going to bailout its own banks! Taxpayers should be very upset about this.
Nick
November 18th, 2010 1:13pm Report this commentNotice how politicians keep say, Labour signed us up for this.
However, its spending. Government is held to the spending promises of a past government.
ie. It's just an excuse.
Commentator
November 18th, 2010 1:23pm Report this commentI fail to see how lending more money to Ireland is going to help the British economy. Ireland needs a controlled default and a devaluation of its currency if it is to have any chance. It may get the first but it won't get the second unless it leaves the Euro. Prolonging Ireland's agony with more loans helps nobody other than European banks with toxic Irish debt on their balance sheets. This is simply a huge disguised bank bailout. If the UK banks needs more capital to cover their Irish losses, then decide whether to give them that capital directly.
I suspect that the Coalition is using this crisis to draw us into the Euro. The spin will go as follows: as we are being force to underwrite the costs anyway, we should have the "benefits" of full memebership.
anne allan
November 18th, 2010 1:33pm Report this commentWhy am I not surprised?
However, provided the Government prints loads of Euros/Pounds I'll take a sack of them over to Dublin and do the Christmas shopping.
Norman Dee
November 18th, 2010 1:36pm Report this commentCommon tater, although the eurosceptic masquerade from Cameron and Hague is completely exposed, I think trying to take us into a sinking ship, when the water looks safer is a step too far even for them.
Scary Biscuits
November 18th, 2010 1:50pm Report this commentShocking as it is, the £7 billion is fairly small beer compared with the £150 billion that British banks (and therefore taxpayers) have at risk in Ireland.
If we assume the Irish bailout will be about as successful as the Greek one (both are corrupt and the 'liquidity problem' is just a sympton), the real question therefore is how are we going to deal with the loss of that £150 billion.
Either the govt can print more money to compensate and risk inflation getting out of control and yet more complaints about welfare for bankers or it bit the bullet and let RBS et al go bust, as Gordon should have done 2 years ago.
PayDirt
November 18th, 2010 2:05pm Report this commentThis looks like the start of the second recessional dip. The FT is saying today to prepare for bank failures. A run on ailing banks not just in Ireland is going to happen. And just like when AIB was allowed to fail, there is general panic. What did UK Govt do, reduce VAT to 15%. Why are we then about the raise VAT to 20%? Surely time to take the profit (of reassuring markets UK is on course with valuing Sterling) from pretending to raise taxes and instead switch to trying to avert deflation. Also in FT is the 15% annual increase in world food prices. Printed money buys less, and less, and less as the crises evolves.
Dimoto
November 18th, 2010 2:20pm Report this commentIt is quite difficult to assess where the Euro crisis will go/end.
For example, the Telegraph has handed comment over to Evans-Pritchard, who is gagging for the Euro to collapse, and colours every article thus, the FT won't admit that an ejection of some countries from the Euro is even a possibility, let alone under discussion.
Any suggestions for some informed, FACTUAL commentary ?
Commentator
November 18th, 2010 3:20pm Report this commentNorman Dee, I hope you are right but it is impossible to be too cynical when dealing with this lot.
Osred
November 18th, 2010 3:30pm Report this commentThey owe us a good 10 points at Eurovision after all this crap.
TomTom
November 18th, 2010 4:26pm Report this commentTomorrow the financiers of our political parties will get their titles in the Lords. Let us simply recognise reality. Nation states have been subjected to a Leveraged Buyout and are now simply the extended balance sheet of the baking system
alexsandr
November 18th, 2010 4:28pm Report this commentEl Sid@November 18th, 2010 3:46pm
He can have Sharon and Caroline
Send Andrea to me.....
anne allan
November 18th, 2010 4:43pm Report this commentLet RBS go hang and in exchange give a free holiday cottage in Ireland to every British family that actually pays UK tax.
p.s. and enough travel cash to avoid using Ryanair.
JohnAnt
November 18th, 2010 5:42pm Report this commentWhy didn't Gus O'Donnell and the Senior Permenant Secretary to the Treasury ban Darling from signing off such an enormous amount of money while a new government was being formed? The previous Labour government had been voted out of office. Why did Cameron not protest? (Oh, yeah right...forget the last question.)
Cogito Ergosum
November 18th, 2010 5:46pm Report this commentAll this Irish trouble has been fomented by a few banksters who don't want to take a haircut on the loans they made, and who think the taxpayer should take all the losses.
Nobody except people with accounts there would worry if any one bank were finally declared bust, pour encourager les autres. Personal accounts there could be given a government guarantee, anyway.
What worries us all is the risk that the payments system (cheques, cards, and electronic transfers) would collapse.
It's high time someone came up with a plan to disengage the payments system from the bonus-driven casino antics of the banksters, which are little more than a conspiracy against the ordinary taxpayer. Then we could watch those banks deservedly fail.
Rhoda Klapp
November 18th, 2010 6:15pm Report this commentSo, this blank cheque we have signed for the EU to do what it likes with. Can we be sure they won't apply the money to 'emergencies' willy nilly? Is there a limit to our liability? Is there a limit to which countries they might apply it to?
You know, I might lend my nieghbour a fiver, or five hundred if he was in schtuck and I had a 500 quid pro quo. I would not give my credit card to the whole damn street to put what it likes on my tab.
But that's just me, and things that apply in domestic finance are not the same in the big world of international bankery.
Iain Hill
November 19th, 2010 11:56am Report this commentWhy should the UK taxpayer do anything to help Ireland? Answer from George Osborne, to protect our own banks once again from major risk. This is the opportunity to end forever the bonus wrangle - no deal on bonuses, no bailout!
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