So we’ve finally reached a huge, albeit inevitable, milestone in the great Irish Bailout Saga: the Irish government has… drum-roll please… gone for the money. The Irish Government yesterday finally capitulated and accepted the Eurozone’s continued attempts to lend it cash. The package, coming from both the EU and the IMF, could wind up being around 90bn euros, to be confirmed in talks over the next few days.
Then this morning George Osborne announced that the UK will be chipping in with a bi-lateral loan of its own, to the tune of £7bn. This has had many of his eurosceptic peers scratching their heads and reminding him that the whole point of not entering the eurozone in the first place was to avoid getting dragged down when things went wrong. At least the UK’s taxpayers will be able to give in generous spirit – it’s not like the UK has a famously crippling fiscal problem of its own. Oh, hang on.
Osborne’s argument, clearly anticipating a flood of eurosceptic vitriol, was that Ireland is ‘a friend in need’. This may be interpreted by more cynical ears as: ‘They’re going to have to pay this baby back with interest’. The more cash-conscious taxpayers will probably understand the logic, but may well question whether that still stands up if a crippled Irish economy simply can’t afford the installments.
There are of course other practical reasons to help. The UK and Irish economies are closely intertwined, both in terms of trade and in the role played by Irish banks in Northern Ireland. Royal Bank of Scotland, 80% UK taxpayer-owned, also has £53bn of ‘credit exposure’ to Irish borrowers – so the bigger the crisis in Ireland, the worse the losses on these loans.
But it’s the headline-grabbing £7bn loan that’s likely to dominate reactions, not any quieter reasons for dishing it out in the first place. For one, there’s Osborne’s reassurance that Britain can afford to ride to Ireland's rescue now, having ‘moved out of the danger zone’ thanks to its own drastic spending cuts. We can imagine all the Brits who lost their jobs thanks to those same cuts celebrating Osborne’s altruism by donning comically oversized Guinness top hats and dancing a jig.
So how does Ireland fare in all this? The lending facility is expected to have a life of three or four years – the idea being that’ll be long enough for Ireland to restore its rep as a credit-worthy nation, and reduce the deficit in its public finances from 12% of GDP to a target of 3%.
Most importantly it’s keeping its beloved low rate of corporation tax, suggesting its game of brinkmanship with the panicked eurozone paid off. The rate is seen as critical in attracting foreign direct investment. Even in this year of recession, export-led tech companies have created 7,000 jobs. Ireland's balance of payments is in the black.
Still, tax breaks for huge US multinationals are hardly going to go down well with the Irishman on the street – especially when income tax is set to shoot up. That’s guaranteed to further fan the sense of injustice against the money men, especially as Ireland’s fall comes on the back of unsustainable borrowing by, you guessed it, Ireland’s banks.
They can now expect huge cuts to benefits and pay, to the minimum wage and public sector services. And its banks could be nationalised. Sound familiar?
One thing's for sure: we wouldn't want to be a member of the Irish Government right now. Heading cap-in-hand to the IMF is never a great vote-winner.