Eurosceptics in the Conservatives have wasted no time in criticising Chancellor George Osborne’s promise of direct loans to Ireland.
For example Monday’s Daily Telegraph:
Douglas Carswell, the Conservative MP for Clacton, said British involvement would anger eurosceptics who had voted Tory for a tougher line on Europe and urged Ireland to pull out of the euro.
He told BBC Radio 4′s Today programme: “If we are going to pay to solve this crisis we should pay Ireland to quit the euro. “The arguments against monetary union are getting stronger: you simply cannot have a common system across disparate economies.
“We [the Tories] promised a reparation of power but it seems we are finding ourselves more liable for debts in a monetary union we are not even a part of.”
Certainly, Osborne’s claim that Britain’s loan offer, which could run to £7bn, was motivated by a sense of community spirit — the UK is a good neighbour and Ireland a friend in need etc, etc — are risible. However, there’s a case for arguing a loan is in the national interest.
First up, there are the large Irish loan books of Lloyds Banking Group and RBS, detailed here by Morgan Stanley:
Lloyds Banking Group:
In its recent 3Q10 IMS, LLOY suggested the Irish impairment may be similar in 2H10 to 1H10 (it took £1.6bn impairment 1H10, implying an annual loss rate over 12% in FY10 on its book) and that the deterioration in economic conditions is keeping impairment levels high, particularly in CRE. At 1H10, the gross book was £26.7bn, with £11.7bn of impaired loans (44% impaired) and an impairment provision of £4.9bn (42% covered). Its Irish CRE book was £11.1bn of which 54% was Property Investment (45% impaired) and 46% was Property Development (90% impaired). The amount of impaired loans on its Irish book increased from 33% end 2009 to 44% 1H10.
RBS has significant exposure to Ireland via its Ulster Bank division. In the 3Q10 IMS, RBS suggested Irish asset default levels and loss rates in both the retail and corporate portfolios were to remain elevated and RBS expected this to continue into Q4 before beginning to stabilise. RBS took £2.7bn impairment 9M10, or ~410bps of annualised losses. At 1H10, the gross Irish loan book was £51.9bn, we estimate ~£10bn of impaired loans (20% impaired) and an impairment provision of ~£4.5bn (~45% covered). The Irish CRE book of £17.4bn at 1H10 was 34% of the total.
And then there’s the fact that Ireland is the UK’s biggest trading partner:
➢ 16% of all Irish exports are bought by the U K, €13.5 billion in 2009
➢ British exports to Ireland are 3 times British exports to China and 5 times the exports to India
➢ Trade with Ireland exceeds total U K trade with Brazil, Russia, India and China
➢ Every man, woman and child in Ireland spends an average of £3,607 per year on British goods, one of the highest per capita spends on British products in the world
➢ Last year, British food and drink exports to Ireland totalled over £2.4 billion, keeping it comfortably in the number one position as the world’s greatest importer of British food and drink
➢ Ireland is also the world’s largest importer of U K fashion and textiles. In 2009, British fashion and textile exports to Ireland totalled nearly £1.2 billion
➢ There are 43,000 Irish directors of UK companies
In case you are wondering, that list comes from the British Embassy in Dublin website and presumably it’s now required reading for staff in the Treasury press office because the Eurosceptic onslaught is unlikely to die down in the weeks ahead.
People like John Redwood — who really seems to be enjoying the eurozone debt crisis — will see to that.
Again from the Daily Telegraph:
“Ireland is part of the Euro because it wanted to be and it’s the European Central Bank that is the lead bank and, with the European regulator, the lead authority over the Irish banks, so it’s their duty to make sure that their banks are solvent and liquid.
“Why should Britain have to do it when we’re not part of the Euro area?” The former Welsh secretary added that the Irish banks had been “weakened” by “some unfortunate remarks from Europe about the state their finances”.
Little England is alive and well.
Related links:
Irish exposure, charted – FT Alphaville
Iron Lady did not like ironclad EMU – FT Alphaville