Britain confirms €8.2bn loan to a 'friend in need'
UK Chancellor of the Exchequer George Osborne yesterday confirmed Britain would extend a £7bn (€8.2bn) loan to Ireland to help stabilise our banking system and public finances.
But speaking in the House of Commons, Mr Osborne reiterated that the UK won't be part of a permanent European mechanism to bailout nations that use the euro. "This is a situation of great difficulty for Ireland," he said adding that Ireland was the UK's "closest economic neighbour".
He said support for Ireland was vital because 5pc of all UK exports come to this country. Sweden is also providing a loan even though it is outside the eurozone. Mr Osborne added: "Ireland is a friend in need and it is in our national interest that we should be prepared to help them at this difficult time."
But British banks lost billions of pounds in value yesterday after the Irish bail-out was thrown into jeopardy over concerns that our government might collapse before a rescue deal can be agreed.
The share prices of Royal Bank of Scotland and Lloyds fell sharply as stock markets took fright at the political chaos engulfing Dublin.
The British commitment came as the EU said providing assistance to Ireland was needed for financial stability in the eurozone. But assistance from the EU will come with strict rules (known as conditionality) said EU economic affairs commissioner Olli Rehn.
Speaking in the European Parliament in Strasbourg, Mr Rehn said: "Providing assistance to Ireland is warranted to safeguard financial stability in Europe. EU financial support can be provided under a programme of rigorous policy conditionality which is being negotiated currently with the Irish authorities by the commission and the IMF in liaison with the ECB."
"The programme will address the challenges of the Irish economy in a decisive manner. The program will also include a fund for potential future needs of the banking sector,'' he added.
Yesterday most of the market chatter focused on how much money Ireland would need. Goldman Sachs' chief European economist Erik Nielsen said the Government would need €65bn to fund itself for the next three years and €30bn was needed for the banks.
"This is like a terrier," said James Dunigan, chief investment officer at PNC Wealth Management.
"It keeps annoying you. We've addressed Ireland's problems, but nobody knows who's next."
The Irish rescue package failed to dampen speculation that Portugal and Spain would follow Ireland in tapping the fund set up by the EU and IMF after the Greece rescue.
"The reality is that the structure is in place at the moment to put countries in life support but the missing link still remains the bigger issue of what do you do after that," Cambiz Alikhani, a portfolio manager at Iveagh Wealth Fund said.
Jurgen Stark, of the ECB's executive board, said that in his opinion Ireland should raise its corporate taxes.