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Wednesday, 24 November 2010

55/45

Our government has decided to support the Irish government and economy through a direct loan of over £7 billion as well as billions more through European Union support mechanisms.  It must be recognised that this decision is not an easy one, to characterise it as a black and white issue would be a mistake.

There is national interest at play.  An Irish economic and banking collapse would have consequences for the British economy with the resulting pain particularly acute for Northern Ireland as well as the need for a further bailout of some of our banks. 

However, it would be a misjudgement to represent the bail-out as an panacea for Ireland.  It will not prevent the Republic experiencing acute economic pain in the next few years.  Its aim is to prevent a collapse not spare the Irish from pain (nor prevent the knock-on effects of that pain to Northern Ireland).  The second problem is it may not work.  There is the potential to be throwing good money after bad.  The lack of any positive signs from the Greek bailout makes such concerns rational as do the economists' predictions (scroll down) that a number of countries will end up quitting the Eurozone even with bailouts.  The bailout may simply be buying time rather than solving the problems.

This leads us to the complicated factor in the decision, the Euro.  How much the Euro contributed to the Irish crisis will no doubt be debated for years to come but what cannot be disputed is that Ireland finds itself without a number of economic tools that a country with its own currency would have.  The problems within the Eurozone have pretty much validated the Thatcherite critique of the entire project but validation does not mean protection from the consequences. 

There is an attempt to defend what was done as for Northern Ireland.  However, this leads to something of a contradiction.  Previously we had been informed the cupboard was bare both in terms of cash and borrowing.  Action on either would not be in our national interest.  Now the Coalition government has managed to find both, cash for the EU and now loans for the Republic.  So concern for the banking sector seems to have been the motivating factor.

However, it was the Euro that negated the need for our participation in the bail-out.  The IMF are sufficiently concerned about the world economy and the EU from an economic (and equally political perspective to keep propping up the Euro) that whatever borrowing Ireland needed would have been forthcoming.  The absence of a £7bn loan from us would not have left Ireland wanting it would have beens ecured elsewhere.  It would have also kept us out of the potential morass of further bail-outs for other countries. Any promises that we won't should be treated with the sceptcisim any statement on Europe from this government deserves.  For me the 55/45 comes down on the side of No.

The die is cast on our particpation but if the government's concern for Northern Ireland is genuine there is a further step it must take.  The Coalition government is to produce a paper on the future of British banks, the over-reliance of Northern Ireland on Irish banks must be addressed in that paper.

1 comment:

ianjamesparsley said...

I share your analysis but come down 55/45 in favour, given the additional point that the £7bn is a loan (and it's not exactly interest-free!)

However, I am concerned that what the UK is doing is lending what is already borrowed money. I strongly agree that there is quite a lot of good money being thrown after bad as part of the whole EU "solution" to this thing. Lending to already overborrowed institutions (be they banks or states) cannot work in the long term.