UK REACTION:SENIOR DEBT holders in Ireland's banks could not be forced to take losses if "financial and economic stability" was to be safeguarded, according to British chancellor George Osborne.
He made the comments in the House of Commons yesterday, when he outlined some of the details behind the near € 8 billion loan that the UK is offering to Ireland to help it out of “its incredibly difficult situation”.
The issue of senior debt holders was “one of the most difficult issues the international community and the Irish people have had to wrestle with”, Mr Osborne told a Conservative MP, who questioned why taxpayers in Ireland and Greece have had to suffer higher taxes and cutbacks while those who invested in financial institutions for profits do not.
“For reasons of financial and economic stability, it was decided that it was not possible and would not be sensible to ask senior debt holders in the Irish banks to take a haircut.
“That is exactly what did happen in late 2008 in some of the US bank rescues, with pretty disastrous effects.
“That is why the decision was taken. Subordinated bond holders will suffer losses and that is appropriate,” Mr Osborne said.
Democratic Unionist Party MP, Ian Paisley jnr sought assurances that recapitalised Irish banks would “not be allowed to be used to have a fire-sale of assets that the Irish State” now owns in Northern Ireland and across the UK.
Replying, Mr Osborne said the deep ties between Irish and British banks was why the British government was “in the room” discussing the terms and conditions, adding that he was “certainly conscious” of Ireland’s “considerable assets” in the UK. “We have a very real interest of that,” he said.
Defending his decision not to seek an increase in Ireland’s corporation tax rate, Mr Osborne said other EU states had “wanted to attach conditions” to the bailout. “I don’t deny that [the 12.5 per cent rate] is a real challenge for companies in Northern Ireland.
“I took a position that it was not [up to] member states to dictate the tax rates of a sovereign nation, even when they are seeking assistance. The rates of tax levied by the Irish Government should be a matter for the Irish Government and the Irish parliament.
“If the shoe was on the other foot, we would not want to be accepting decisions imposed on this parliament. This should be a matter for the country concerned,” he said.
The £3.25 billion bilateral loan to Ireland, “one of our closest economic partners”, will be denominated in sterling and charged at an interest rate “similar to that levied by the IMF and the euro zone”, he said.
Supporting the Irish loan, Labour shadow chancellor Alan Johnson nevertheless mocked Mr Osborne for his past praise for the Celtic Tiger.
Veteran Labour MP Dennis Skinner asked why the chancellor now believed “the Irish banks worth saving” when the Conservatives had argued from the opposition benches that Northern Rock wasn’t .
Mr Osborne said: “Frankly, if the honourable member thinks we shouldn’t be supporting the Irish banking system then the impact of his proposals on his constituents in Derbyshire would be very severe.” Later, he went on: “Ireland has had to take some incredibly difficult decisions to deal with its fiscal deficit.”