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Britain 'can afford Irish bailout'

The UK can afford a multi-billion bailout of the Irish economy, Chancellor George Osborne insisted as he sought to ease Tory backbench concerns over the move.

Mr Osborne has signalled that the British contribution to an international bailout package for Dublin is likely to be around £7 billion.

MPs will have a vote on a bi-lateral loan to be offered alongside a wider deal being drawn up by the European Union and the International Monetary Fund, he confirmed.

But the UK is also tied in to an EU mechanism that would leave it liable to pick up the bill if Ireland defaulted on loans guaranteed against the Brussels budget.

Mr Osborne said that was "highly unlikely" to happen but was warned by MPs of public anger at taxpayers' cash being used to prop up a foreign economy at a time of cuts at home. And the situation has riled Tory eurosceptics who are furious that the country is being forced to help despite not being part of the eurozone.

"This is a loan that we can afford to make and will get back," Mr Osborne said as he made a statement to the Commons to explain the proposals.

The Irish government is meanwhile putting the finishing touches to a drastic 15 billion-euro savings plan after prime minister Brian Cowen defied calls for a snap election.

An embattled Mr Cowen said on Monday he wanted to stay in power to pass the crucial six billion euro (£5.1 billion) savings in next month's budget. He said he planned to dissolve the Dail (parliament) in the new year, despite calls from coalition partners to hold an election before the year is out.

Bank shares came under pressure in the UK and America amid the uncertainty over the details of the Irish rescue package. The FTSE 100 Index ended nearly 1% lower, as investors fretted over the impact of the crisis on other lenders.

Part-nationalised Royal Bank of Scotland, which is seen as being the most vulnerable in terms of Irish lending through its Ulster Bank subsidiary, fell nearly 5% while shares in fellow taxpayer backed Lloyds Banking Group dropped 4%.

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