So the Irish government has announced it has accepted an €80 billion bailout from the EU to refinance its ailing banking sector, including a £7 billion loan from the UK. The announcement of this British loan in particular has certain members of the government and media in a tizzy.
For example, Senior Tory and arch Eurosceptic John Redwood has flat out asked why Britain is propping up the Irish finances, when Ireland entered the common currency fully aware of the risks. Meanwhile Moneycorp’s Mark Deans has written that Britain has been co-opted by the EFSF into making the loan.
These commentators write as though Britain was doing the Irish a favour by providing the £7 billion loan. They suggest that because the UK is not a member of the common currency it has no business supporting members of the eurozone.
In doing so they characterise George Osborne as a sentimentalist: someone willing to risk Britian’s fragile public finances out of neighbourly feeling. We do not share this view. Britain – like the EU – has to the Irish aid out of self-interest: a desire to protect its own investments. Simply put the UK cannot afford to see the Irish banking sector collapse.
For instance, last Friday the Bank of International Settlements revealed that Lloyds TSB and RBS have between them £140 billion exposure to Irish debt. If Ireland collapsed this would weaken these banks significantly: no small potatoes given coming only 2 years after the UK government refinanced them.
In addition Ireland is one of the UK’s biggest trade partners. Therefore if Ireland collapsed Britain would lose billions per year in imports and exports.
Hence those that comment that Britain has no business assisting Ireland, or suggest we’re being co-opted by the EFSF, are not looking at the bigger picture. This is not about the UK contributing to the recuperation of the common currency.
This is about protecting Britain’s interests.