Ireland’s nightmare becomes Europe’s problem

“We certainly haven’t looked to Europe.” That was the message spilling from the mouths of Irish Cabinet ministers last night – but, as Alex suggested in a superb post on the matter this morning, their utterances may come to naught. After all, Europe has certainly looked to Ireland – and it doesn’t like what it sees. Already, Brussels’ moneymen are urging a bailout on the country, and Ireland’s moneymen are thought to be in “technical discussions” about how that might work. The upshot is that a financial intervention from Europe is now considerably more likely than not. And with that come European demands over how Ireland should manage its public finances – and raise its taxes.

There are plenty of lessons for all sides in this. Many of them will be repeated insistently over coming weeks – about small countries taking big risks; about the dangers of ceding monetary independence to Europe; about the limits of fiscal restraint in the face of massive banking debts, and so on. But, from the UK’s perspective, I imagine the main talking points are yet to come. It’s thought that any bailout to Ireland will be made from the European Financial Stability Facility Fund – a eurozone mechanism from which we’re exempt – but there’s also talk (£) of deploying the EU’s emergency fund, which could make us liable for a loan of up to £6 billion. Whereas Treasury officials were keen to keep a solution to the Greek crisis within the eurozone, they are now telling the papers that, “This is not like Greece. [Ireland] are close trading partners.”

It rather sums up the peculiar situation facing Europe, including the UK. Failure to act means that the contagion from Ireland could spread. But action carries with it clear costs, both fiscal and presentational. It’s true to say that few domestic voters will relish the idea of propping up ailing economies elsewhere, particularly at a time of gruel and restraint at home. And what kind of precedent is being set should other countries, such as Portugal and Spain, go the way of Ireland themselves? A few years ago, the Celtic Tiger was a proud, growling beast. Now we must grapple with the consequences of its death.