Ireland: An extreme version of the British disease
Any Briton tempted to gloat over the woes of Ireland should probably think again, in that Ireland's financial crisis could easily have been the UK's.
The point is that Ireland's flaws are an extreme version of what happened here:
Grafton Street, Dublin
1) Banks that became too big and too dependent on overseas borrowing relative to the size of their respective economies;
2) Banks that lent far too much to commercial and residential property, fuelling an unsustainable boom that has gone pop;
3) Governments that became too dependent on property taxes which collapsed when recession set in - contributing to the emergence of a black hole in the public finances;
4) An overall burden of debt, aggregating household, banking, commercial and state borrowing, that was a humungous 700% of GDP in Ireland and an eye-popping 400% of GDP in the UK (more than for any other big rich economy apart from Japan).
Why has Ireland had the humiliation of being forced to admit that it is unable to pay its way in the world whereas the UK government is still able to borrow vast sums at record low interest from commercial lenders and can swank that it has the means to be a generous rescuer of Ireland?
There are a number of reasons, which probably include how the UK has tackled its own recent financial crises and that the UK has an independent currency and central bank. Even so, Ireland's dismal fate could easily have been the UK's - and, if global financial storms were to rage again, could yet be.
Obviously the important question now is whether the European Union's rescue of Ireland has sealed in the infection, allowing the rest of the eurozone economy to recover, or whether it simply provides temporary respite. To put it more bluntly, will Portugal be next?
Portugal insists it can muddle through. But that is not being taken for granted by the European politicians and officials to whom I've spoken in the past 24 hours, because although Portugal's banks are not as bloated or as weak as Ireland's, its private-sector economy is arguably less robust.
For what it's worth, if Portugal were to go cap-in-hand for loans to the European Union and International Monetary Fund (IMF), the UK would be less prominent in the rescue, officials tell me - for the self-interested reasons that Portugal is rather less intertwined into the British body politic/economic than Ireland.
PS: The shape of the Irish rescue is being slightly clearer.
The total size of the bail-out package is expected to be between 80bn and 90bn euros. Of this, something over 30bn euros is expected to be earmarked for injecting additional capital into the banks, to strengthen them against future losses.
The bank most conspicuously in need of additional financial support is Allied Irish Banks. Of course, Anglo Irish Banks is weaker, but the government already put it on a path to being wound up. What's less clear is whether Bank of Ireland will become largely nationalised in this new round of reinforcing the Irish financial sector.
The UK's share of the Irish package of succour, including indirect loans and a possible direct bilateral loan, might well be 9bn euros.
Update 1057: Over the past 24 hours, I have been asked countless times how the UK government can afford to provide around £7bn of support for Ireland - through indirect and possible direct loans - at a time when it is struggling to reduce its own deficit.
Well the answer, as many of you will know, is that unlike Ireland, the UK is currently having little difficulty borrowing record amounts at comparatively miniscule rates of interest.
If the UK were to lend to Ireland for three years at an interest rate of 5% or more, which seems likely, that - in theory - would yield a profitable turn for the UK exchequer of perhaps 3 percentage points (or 300 basis points, in the jargon).
It would be good business, on the reasonable assumption that Ireland repays the UK.
Also, for those who say the £7bn could be better deployed funding schools or hospitals, or paying to keep civil servants in work, it's important to remember that - over the long term - the road to ruin is the fork in the road where public spending is permanently financed through borrowing rather than taxation.
That said, borrowing to invest - to build schools, hospitals, railway lines or low-carbon power plants - can be seen as sensible.
In fact, there are some who argue that the UK should take advantage of low interest rates to increase infrastructure investment, with the aim of improving the productivity of the economy (a fascinating new report by McKinsey argues that one of the great priorities for the UK should be to invest around £520bn in infrastructure over the next two decades).
Update 1300: For the avoidance of doubt, the British contribution to the Irish rescue will be less than 10bn euros (£8.5bn) in total, sources tell me.
That would be the total, including a bilateral loan of indeterminate size and the UK's indirect contribution via the IMF and the European Financial Stability Mechanism.
The balance between direct and indirect loans is yet to be agreed.