Should Britain help bail-out Ireland?

“Greece is not Ireland,” was the not-totally-independent view from Greece’s Finance Minister to a London financial audience last week.

All of which helped contribute to a further descent down the loop of doom that seems to be enveloping the Emerald Isle.

My sense is that, although something needs to be done, it is rather late in the day to be expecting much – beyond rhetoric – out of the meetings of European finance ministers tomorrow and Wednesday.

The response of Dublin, as we head foursquare towards some sort of external bailout, is a rather tenuous attempt to distinguish between bailout of Ireland’s sovereign debt, which it says is un-needed, and a further bailout of its banks, which is needed without doubt.

In some senses Ireland’s banks are being bailed out on a daily basis by the European Central Bank’s myriad funding streams. Even on Friday, the Bank of Ireland issued results that analysts interpreted as suggesting a €10bn loss of corporate deposits in September. International bank lending is drying up, as evidenced by the savage surge in lending costs to new records. the ECB is picking up the slack.

As one EU finance minister has told me, 70 per cent of what comes out of Brussels is in fact the word of the ECB in Frankfurt, so small wonder that Ireland is facing pressure to sort things out to prevent contagion to other Eurozone members.

So how does this affect the UK? Clearly, Britain has a vested interest in a healthy Irish economy.

There are two mechanisms agreed by Alistair Darling in the final days of his Chancellorship, during the Coalition negotiations in May.

The €440bn European Financial Stability Facility is a eurozone initiative, though its establishment as an off-balance sheet special purpose vehicle was a UK idea. The €60bn European Financial Stability Mechanism is guaranteed by all EU members, and would see the UK “on the hook” ie liable in the event of default, for just under €7bn euros. It would be a contingent liability rather than cash out of George Osborne’s coffers.

For what it is worth, Chancellor Osborne has not chosen to reopen this deal agreed in his absence. My sense is that he rather dodged a bullet in missing the 8 May meeting, as the EU titans were annoyed enough at Darling’s refusal to participate in the EFSF. Imagine if that had been the new Conservative Chancellor.

But it does raise some vital questions. If the UK exchequer is to be on the hook for many billions of euros, how can it be possible that Dublin uses its 12.5 per cent (and arguably lower) corporate tax rate to shrink Britain’s tax base by tempting away big corporates such as WPP, and Shire Pharmaceuticals?

At a dinner last night at the Irish Embassy, the Enterprise Minister Batt O’Keefe said: “It is one aspect of taxation that will not change in next month’s Budget”.