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A friend in need

Mark Devenport | 10:36 UK time, Monday, 22 November 2010

The old republican maxim used to be that "England's difficulty is Ireland's opportunity". Changed times, now the British Chancellor sees Ireland's difficulty as an opportunity to help - in George Osborne's words - "a friend in need".

Of course it's not just an act of charity. The British and Irish economies are heavily interconnected in terms of trade and bank loans. A complete collapse south of the border might make it easier to get a parking space at a Newry shopping centre and cause some unionists to gloat about the "failed entity" south of the border. But the impact in terms of diminished takings and job losses here would soon set that into context.

In London some euro sceptics - like the Conservative John Redwood - have argued that Britain should not participate in any rescue package. That's been echoed by the TUV leader Jim Allister who last week described the prospect of the UK playing a part as "monstrous and wrong".

However at Stormont it's just not nationalists who appear convinced that George Osborne has little choice about taking part in the rescue. Yesterday on "Inside Politics" for example (speaking prior to the confirmation of the multi billion Euro bail out) the DUP Finance Minister Sammy Wilson told me Ireland was "reaping the effects of having joined the Euro and lost its fiscal and monetary independence". But he added that he didn't take any pleasure in what was happening and didn't think " any of us want to see a weak economy in the Republic". Mr Wilson pointed to the level of interdependence between Northern Ireland and the south adding that he was concerned that the continuing problems being revealed within the balance sheets of the Dublin banks could have a negative impact on the liquidity available to firms here.

Not everyone, of course, agrees with Messrs Wilson, Allister and the Daily Telegraph that the Euro is to blame for Ireland's difficulty. In yesterday's Observer Will Hutton blamed the "duplicity and lack of grip" of the Irish government and the fact that "Dublin followed Edinburgh, Reykjavik and Dubai in trying to exploit unregulated global finance and become an international financial centre." He argued that instead of being the problem the Euro should be part of the solution.

I am not going to pretend to be a financial expert. With a layman's eye, it seems that membership of the Euro has robbed Ireland of one lever for managing its crisis. But the the roots of the difficulty lie not just in the cheap credit made possible by Euro membership, but also a lack of bank regulation (a problem common to other countries). Whilst celebrating the success of the "Celtic Tiger" the authorities in Dublin failed to discern when a boom fuelled by healthy export performance tipped over into a bubble of unsustainable property speculation.

Last week, talking to Gerry Adams about his move to Louth, I asked him if he had been in power during the 2008 financial crisis, would he have let the banks go to the wall. He answered "yes", adding that he would burn the bonds issued to investors.

At some point I'd like to see a good counterfactual piece about what would have happened if the Irish government hadn't come to the banks' aid in 2008. In the Irish Independent back in September Thomas Molloy argued that it was "possible the country would have witnessed 'Mad max' scenes for several days as cash shortages forced people to barter and then loot supermarkets and other sources of food."

The failure of Irish ministers to tell the truth in recent days may have seemed mildly irritating (just last weekend they were blaming the BBC for peddling "fiction" about the bail out). But it could be excused as a tactical manouevre in the midst of high stakes financial negotiations. The far bigger questions concern the strategic decisions made in 2008 and in previous years and whether the alternative courses of action canvassed by opposition politicians would have averted this crisis or merely accelerated events.


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