Monday, 29 November 2010

The UK and the Irish bailout

Ireland has not got a bad deal out of the EU/IMF bailout. They have retained their low corporation tax rate which, to be fair, is necessary if they are grow out of the crisis (although most analysts think the projected figures are optimistic). The interest rate is higher than Greece was charged at a mean of 5.83 per cent, but lower than some forecasts.

Irish citizens are blaming bad government for the mess they are in, but let's not forget that some of them were willing to take the cheap money when it was available and ruin the Irish countryside with completely out of character houses in prominent positions.

Britain is putting in a package of help as are two other non-eurzone countries, Denmark and Sweden. A texter to 'Wake up to Money' this morning asked 'How can we lend money to Ireland when we are skint?'

Simples. First, we are lending money to Ireland at a higher interest rate than we have to pay for it so we should make a profit. Admittedly, the Irish could default and they will be paying 20 per cent of their taxes to meet the interest. However, I think the odds are now against a default.

In any case, Ireland takes 7 per cent of our exports and British banks are heavily exposed in Ireland. The national interest is an over used phrase but George Osborne is right to use it in this case.

However, right-wing Conservative backbenchers are not happy and may be less so if it was proposed that Britain should help out Portugal or Spain who are the next likely targets for the financial markets. Spain is over 10 per cent of the eurozone economy, but it should be noted that the 'peripheral' countries only account for 20 per cent of the eurozone as a whole.

The eurozone could move towards a fiscal and political union but that is very unlikely. In the longer run we may see a smaller eurozone which is what many people wanted in Germany in the first place, but the actual mechanisms of exit for, say, Greece, would be difficult to set up.

1 comment:

Anonymous said...

Very good post.