Should Britain really be helping to bail Ireland out?
There are two schools of thought whether Britain should play a significant role helping to bail Ireland from the current debt mess. The first and what I will call the primary view led by UK Prime Minister David Cameron and Chancellor of Exchequer George Osborne is that Britain needs Ireland to be stable and strong. Surely no-one in their right mind could possibly disagree with that.
The argument espoused by the British Coalition government is clearly founded on straightforward realisation that Britain and Ireland are huge trading partners and that walking away now would seriously damage business potential for many a UK based company. We may also assume that the UK government notion is also based on a premise that walking away from Ireland's plight now would potentially further damage the interests of a handful of unfortunate British banks that have found themselves very much on the wrong side of Ireland's huge debt mountain. I suppose that it is also right to remind that when all is said and done the amount of likely UK funding commitment is an absolute drop in the ocean compared the overall state of Ireland's problem.
The converse argument to UK government support to Ireland that is led by the likes of the right wing Tory MP for Clacton, Mr. Douglas Carswell and others no doubt is that rather than helping to fund Ireland as part of a any IMF, EU/Euro stability fund based solution that will, we assume, require the Irish government retain commitment to the Euro currency that Britain would be far better off providing no additional support now that helps the struggling nation to stay within the Euro. Assuming that Britain does not have a legal choice over whether or not to provide funding to any failed EU member state the Carswell argument may be interpreted as another way of saying that Ireland would better be allowed to default and that right now we should encourage just that.
If so Mr. Carswell would do better to worry a little more about what he might be wishing for as if Ireland is forced to stop supporting its banks right now and if the nation is at some point forced to default Britain would very likely suffer a cataclysm of additional financial market problems itself and that could well lead to a complete loss of confidence by foreign investors. Meanwhile Mr. Carswell would do well to remember that what the UK government is also doing is managing market expectation - in other words managing just what markets expect them to do.
So which of the two arguments is right? Before answering that we need to look at some of the myths that have sprung up about Ireland. The first is that joining the Euro was the sole cause of the Irish mess. Untrue. No, I am not defending the Euro here but if joining the Euro really was the sole reason why quite so many US and other companies chose to invest in Ireland creating as they did vast numbers of new jobs in the economy and with it, demand for housing and the like and thus creating growth then I stand ready to be corrected meaning I would then admit that joining the Euro was the sole reason to blame.
But if all that massive corporate investment injection by mainly US and Japanese companies was reasoned primarily because Ireland has been perceived as a country that enjoyed very low taxation then it is surely wrong to blame everything on the Euro. The answer is no doubt a compromise that both factors are to blame.
Certainly it is true that Ireland has been one of the most attractive countries for foreign companies to invest within Western Europe because of the various tax and other incentives. The common language no doubt helped too in terms of US investors. Additionally one can hardly blame the Euro for the great technology boom and bust that was still going on when Ireland joined the Euro and for which Irish based US subsidiary operations played such a huge part in manufacturing products required to fuel the boom. In fact it may be said that apart from the weather perhaps Ireland offered just about everything that a foreign company could possibly want - space to grow, government support to build, a country with very limited planning regulations, reasonable transport system, relatively cheap labour albeit limited skill base and so on.
For a time in the early years of the currency it also offered advantage of a lowly Euro as well. All this and what just twelve years ago was a country that enjoyed very low cost housing.
None of this is to suggest that Ireland's decision to join the Euro cannot be blamed for the current woes but it does I hope put it in some kind of balance and perspective to the occasional myth that has been allowed to develop. Being in the Euro and with the economy growing so fast certainly attracted property speculators by the score and the Irish banks showed that they would better be drawn in than remember the lessons of history.
Of all countries that could have been hit Ireland should have known better. Equally true that one may also blame European Union membership for a part in the overall failure process and plot although in saying this we must recognise that from an investment perspective being part of the EU was to play a big part in driving forward much needed infrastructure spend in Ireland and that would be a primary reasons why the Celtic tiger economy was able to expand so rapidly.
Back to the central question though - should Britain be using borrowed money to bail Ireland out? The answer is that it probably should and for no lesser reason than that if we don't and if we ourselves remain under the jurisdiction of European law then potentially if we did not and if were perceived to be encouraging Ireland to fail then we could suffer a flood of Irish immigrants crossing to the UK for which we are in no position to cope.
The British government has no powers to stop related EU area immigration and yet with relatively few jobs to offer and being in no position to afford the extra social or health costs that would undoubtedly follow we should not be surprised that the UK coalition government has opted for the lesser of the two evils. For the UK bailing out Ireland isn't just about protecting UK banks it is also about thinking outside the box.
Undoubtedly, as the outspoken MP for Clacton makes quite plane, to move forward from the current plight requires that Ireland's standard of living which has improved so much over the past decade will need to decline. So it will also in Britain of course! Where I find myself also agreeing with Mr. Carswell (a rare event as both he and I already know) is that whether or not Britain provides Ireland with a miserly (up to ÃÂ£10bn is being suggested) Ireland needs to end its unfortunate affair with the Euro as quickly as possible.
Whilst it is perfectly understandable that faced with a plight that its banks could no longer obtain funds and that Ireland's cost of borrowing required the Irish government had little choice but to go cap in hand to IMF and European authorities I believe that the next government (we assume this will be in place by next March) should announce an intention to leave the Euro. After all, someone has to be first!
Will Ireland do that I wonder? Clearly the current Coalition based administration could not even if they wanted to leave the Euro do so now but if the Irish people really do want stable government in future for one side to say ahead of the next election whenever that is that planning to leave the Euro really is an option that is on the table could be very well timed.