Ireland debt: Osborne ponders bail-out

I’ve just been talking to the Chancellor George Osborne at a briefing in Brussels after his lunch with fellow European finance ministers about the Irish debt question.

It is very clear that should Ireland ask for aid, then direct loans from the UK to Ireland are on the cards, as part of an effort to recapitalise and refund the Irish banking. It is still an “if”, as the Chancellor said just moments ago: “These are precautionary discussions”.

However he went further than I believe he would have had the problem affected, say, Portugal or Greece. The Chancellor said: “In terms of the assistance that we might provide [if Ireland asks] I won’t speculate. There are a number of different avenues open and we are looking at all of those”.

He said the motives for this were “Britain’s national interest” and the economic health of a nation with which “we share a land border”.

I asked Mr Osborne directly if the Bank of England or the FSA had raised concerns about UK banks’ $220bn exposure to Irish banks. He replied: “UK banks have passed stress tests, and our engagement in this is because we are good neighbours of Ireland and not because of particular UK banks”.

And then in statements remarkably supportive of Ireland’s embattled finance minister Brian Lenihan, Mr Osborne politely declined to criticise Ireland’s low corporation tax that has helped shrink the Chancellor’s tax base.

“It’s up to countries to decide their own tax policies. That’s a principle I hold dear,” he told me.

Whatever the thinking behind these statements, the Chancellor seems to have strengthened Dublin’s hand in tough negotiations with Europe that start tomorrow. Very neighbourly indeed.