Ireland is going to need to be rescued.  This is a big deal for me as being Irish, no matter how far back, has always been a part of my make up.  Like most English cradle Catholics, my family is largely Irish (more thoroughly and recently on my mother’s side) and many childhood summer holidays have cemented a genuine love for the country, people and culture.

Well Ireland’s going belly up partly due to an enthusiasm for the Euro, and aren’t we lucky that we didn’t catch that train early – as Michael Heseltine put it (not the first or last time he was wrong).  It’s also due to the fact that, probably at German urging, the Irish state backed up the very dodgy banks to 100% of the face value of their liabilities.

So George Osborne looks like he wants to help alleviate these mistakes by making them for Britain.  First he wants to tie us into the Euro zone rescue deal, which will create a trillion pound precedent as we will be called to rescue Greece, Portugal, Spain and Italy.  The other mistake he wants us to repeat is to buy the Irish debt up at near the face value.

So if we think that we shouldn’t let Ireland go bust (and that’s probably the best deal for all of us, particularly for the Irish) why should we be there?  Well there seem to be two answers, the first is that there’s a lot of trade with Ireland and the second (and not so loudly shouted) is that there are quite a few British banks up to their eyes in Irish debt.

So what can we do?  First as to the debt.  The best way to do this is to buy the debt as close as possible to market price.  This should be done through a reverse auction in that the British government allows for a certain amount of ten year treasuries which will be traded for Irish debt, with the banks bidding with Irish debt – the more the debt the more likely they are to get the Treasuries.  This debt can then be bundled into a debt vehicle which could come under UK Financial Investments Limited, the UK’s holding company.  This will call the banks’ bluff as they will have to declare a loss on this debt, which in turn should dent a few bonus pots.  It should also be a better long term deal for the Treasury.

With some of the partially state owned banks the devalued debt could be swapped directly for shares, as a form of buy back.

This money would also have the beneficial effect of recapitalising the banks, although doubtless EU state aid rules would mean that continental banks can get in here (although in turn there may actually be some really good bargains if we have the Germans and French offloading the debt).  This will mean that unlike a Euro zone bailout that some of the money would come back to the UK in the form of lending.  It could take the place of Quantitative Easing (although EU state aid rules mean that this leaks like a sieve outside the UK).

Most importantly of all it would be out in the open where the billions of pounds are going.  People are far more likely to approve of stopping banks going under than they are of keeping a foreign currency alive.

As to Ireland itself it is imperative that any bailout that is done to smooth out the recession in one of our larger trading partners is done under separate cover from the EU.  The EU should get the credit for what they can give, and the UK should get credit for what it gives.

A straight loan or credit facility from the UK government to the Irish would be the best thing here, although I suspect that this bailout is more about the banks than about export markets.  The EU should not administer a British penny, as for no other reason the EU has African levels of corruption and a good chunk of the money would become salaries and consultancy fees for the children and mistresses of well connected officials.  As an aside, aren’t the Kinnock family looking prosperous these days?  Our civil service and political class (at least those that haven’t been in Brussels)  is far, far less corrupt than the Europeans.

The financing needs to be independent and transparent.  Personally I’d be happy to see the banks that over-lent to go bust.  If we had kept our nerve after Lehman the recession would have been a distant memory by now.  It may be galling for all the bankers to see their bonuses in six rather than seven figures, but the taxpayers deserve a break too.

(Rather oddly the “head of the euro zone’s fiscal safety net” is saying that the British are going to subordinate to the rest of Europe, while George Osborne is talking about a separate line of aid.  This is more than just words.)

Related articles

• Eurozone debt crisis: Portugal admits ‘it could need EU bail-out’ (telegraph.co.uk)
• What our German friends are saying about the Irish problem. (politics.ie)
• EURO GOVT-Irish bond yields rise as euro zone ministers meet (reuters.com)