Dominic Lawson: George Osborne and the Irish bailout – it's family business

Although the Irish government has expressed gratitude, it must be bitterly galling to be relying on the Brits for a lifeline
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The Independent Online

Students of Burke's Peerage will be less surprised than many others by George Osborne's decision to loan the Irish Republic billions of pounds, over and above Britain's contributions via the International Monetary Fund and the European Financial Stability Mechanism. They will be able to point out that the Chancellor of the Exchequer is heir to the Osborne baronetcy of Ballentaylor, in County Tipperary, and Ballylemon, in County Waterford; and that down the centuries a number of his forebears were notable members of the Protestant ascendancy, representing Waterford in the Irish House of Commons. Noblesse oblige, and all that.

If only it were so charming. Sentiment doesn't enter it at all, despite Osborne's remarks yesterday about "helping a friend in need". As the Bank of International Settlements points out, the UK is the Republic of Ireland's largest creditor, with almost $150bn already in the pot, and in danger of default. Perhaps even more to the point, no less than 40 per cent of Northern Ireland's exports are to its – that is, our – neighbours in the south. Given that Northern Ireland's economy is grotesquely dependent on a public sector already heading for a cull, there is all the more need, as London sees it, to preserve the province's private sector from further asphyxiation.

Although the Irish government has openly expressed gratitude for the support from London, it must be bitterly galling for a Fianna Fail administration to be relying on the Brits for a lifeline. Even The Irish Times, never seen as particularly nationalist in its outlook, asked: "Is this what the men of 1916 died for: a bailout from the German Chancellor with a few shillings of sympathy from the British Chancellor on the side? Having obtained our political independence from Britain to be masters of our own affairs, we have now surrendered our sovereignty to the European Commission, the European Central Bank and the International Monetary Fund."

On reading this self-pitying tirade, I imagined I could hear laughter in the dark. The laughter would be that of the late Nicholas Ridley. Thirty years ago, as editor of The Spectator, I published an interview with the then Industry Secretary, in which he sent shockwaves through British politics by describing the European Monetary Union project as "a German racket designed to take over the whole of Europe". This was in fact identical to the opinion of the Prime Minister of the day, Margaret Thatcher; but Ridley's additional observation – "I'm not against giving up sovereignty, but not to this lot. You might just as well give it to Adolf Hitler, frankly" – was too much even for her (in public, at least), and Ridley was forced to quit.

Yet what is less remembered is that Ridley used Ireland as an example of what he claimed to be the growing and undue influence of Germany: "I mean, they pay half of the countries [in the EU]. Ireland gets 6 per cent of their gross domestic product in this way. When is Ireland going to stand up to the Germans?" Seen from this perspective, the howl of anguish from The Irish Times is about thirty years too late.

It is widely believed, and not just in Ireland, that the German Chancellor, Angela Merkel, precipitated the recent run on Irish banks by her remarks ahead of last month's EU Brussels summit that bondholders would have to pay a heavy price in any bailout, rather than the taxpayers yet again: this duly had the effect of panicking the bond markets. Actually, I can sympathise with Frau Merkel, for all the fury that her remarks have aroused across Europe: how much longer will she be able to persuade her own nation's taxpayers to provide the lion's share of bailouts for improvident eurozone members, when each earlier refinancing had been sold to them as "the last one"? What's more, there are an ever-increasing number among her electorate who do not regard the euro as a currency which represents a safe long-term store of value for their savings and future retirement; the nostalgia for the Deutschmark is undiminished. Some Germans have hopefully speculated that even now there is somewhere a secret state-financed printing press churning out Deutschmarks, ready for instant circulation when the country unilaterally abandons the euro to its fate.

I'd be amazed if that happened; and not just because German exporters have found European monetary union a blessing. Angela Merkel herself has echoed EU president Herman Van Rompuy's remark that "If we do not survive with the eurozone, we will not survive with the European Union." In strict logic, of course, the EU can exist without the euro – after all, it did before. Yet on a psychological level, Van Rompuy is probably right in his apocalyptic prediction; a collapse of the eurozone would cause such humiliation within the entire European movement that it would lose its raison d'être.

Would that be good or bad for Britain? To the consternation of many of their supporters, George Osborne and the Foreign Secretary, William Hague, both avowed Eurosceptics, have declared it to be bad. Their argument, in essence, is that Tories have always wanted stability in Europe, rather than chaos; and since we are outside the euro, we can continue to profit as a trading partner with the Continent, while still having such financial and fiscal independence as comes from retaining the pound sterling. Of course, now that they are in coalition with the Liberal Democrats, they feel unable to point out how preposterous were the warnings of Nick Clegg and others that if we remained outside the euro our trading relationship with Europe would be doomed.

In the light of this, perhaps George Osborne could make an additional offer to the Irish, one mooted last week by my old friend, Sir Samuel Brittan. Sam observed that until it joined the Exchange Rate Mechanism in 1979, "the Irish pound was virtually identical with the UK pound. It was more than a fixed exchange rate ... if the UK and the EU were at a parting of the ways, the natural instinct of Irish leaders was to go with continental Europe, even though it had some dubious economic consequences. [Yet] the two economies hang together more than it is fashionable to admit."

Who knows, perhaps George Osborne's familial links with Ireland might lead him to pursue Sir Samuel's delightfully provocative proposal of a renewed Anglo-Irish currency union. That is, once the Germans have helped to clear up the mess.