Irish bailout: UK forced to act to stop crisis spreading north
David Cameron has revealed he signed off a £7bn bailout loan for the Republic to save Northern Ireland from spinning into an economic crisis.
In an interview with the Belfast Telegraph, the Prime Minister warned how failing to reach out to the Republic would have resulted in “very bad consequences” for Northern Ireland.
Mr Cameron also dropped a heavy hint that calls for a cut in Northern Ireland's corporation tax would be kicked into the long grass as a result of the collapse of the Irish economy.
Speaking at No 10, the Prime Minister insisted that refusing to intervene in the Republic's woes was not an option.
Part-nationalised Royal Bank of Scotland, which is seen as being the most vulnerable UK bank in terms of Irish lending through its Ulster Bank subsidiary, operates in the Republic and its share price has fluctuated since the crisis erupted. Yesterday it fell nearly 5%, down 1.9p to 39.8p.
The land border and trade links meant the knock-on impact would have been severe, the PM warned.
“Not acting to help the Irish economy would have very bad consequences for Northern Ireland,” Mr Cameron said.
“I think it would also have very bad consequences for the whole of the United Kingdom.
“Ireland is a very big trading partner, it's one of our biggest export markets, our banks and financial institutions are very much linked.
“We have huge amounts of people from Ireland coming to work in the UK and people from the UK going to work in Northern Ireland, so the connections between the economies are very great.
“If the Southern Ireland economy failed that would have very bad consequences for Northern Ireland, so that is one of the reasons for being involved in helping the Irish economy stabilise and grow.
“If you look at the performance of the Irish economy, there are some positive signs.
“The problems are around its banks and the level of debts partly linked to its banks. If those problems can be dealt with, I don't see why the Irish economy can't go on and succeed.”
The UK contribution will be mixed into an international package worth up to £85bn backed by the European Union and the International Monetary Fund.
The terms of the deal are still being thrashed out. Germany in particular is said to be very keen on forcing Ireland to hike up its 12.5% corporation tax rate, something that was credited with fuelling the boom years.
While calls continue from politicians and some business leaders for Northern Ireland's rate to be brought in line with the Republic as a means of attracting overseas investment, Mr Cameron indicated that was unlikely to be a major short-term priority.
He said: “In terms of the low corporation tax rate, I think we have to be careful here. I do believe it's up to countries to set their own tax rates, I don't believe in a European-wide setting of tax rates.
“I think we have to be careful before we do too much insisting on what people should do. It's important that countries set tax rates that are sustainable.
“In terms of Northern Ireland, this issue I don't think has gone away, but obviously the focus will be much more on how we get the Southern Ireland economy much more stable and growing.
“We will have to see where the tax rate ends up at the end of that before taking forward this agenda.”