Irish government on brink of collapse as Cameron and Osborne face fury over Britain's £7bn loan

• Osborne confirms UK contribution of around £7bn
• British MPs call for vote on Ireland rescue package
  
• Irish govt in crisis after coalition partner calls for vote
  

David Cameron and George Osborne faced a furious backlash over Britain's £7bn loan for Ireland today as the Irish Government was pushed to the brink of collapse by the withdrawal of a junior coalition partner.

The Green Party today called for a general election in Ireland and said a vote should be set some time in the second half of January.

John Gormley, Green Party leader and Irish Environment Minister, said the party made the decision on Saturday.

The dramatic call comes less than 24 hours after one of the darkest moments in recent Irish history when the country agreed to ask the International Monetary Fund and Europe for a multi-billion bailout.

Confirming that the UK would pay more than £7billion into an international package worth up to £85billion, George Osborne insisted the bailout was in Britain's 'national interest'.

Child's play: Daisy Gogarty (18 months) yawns in the arms of Green Party TD Paul Gogarty as leader John Gormley (far right) gives a press conference calling for a general election

Enlarge

A protestor stands outside the front gates of the Irish Prime Minister's office in Dublin. Anger is growing in the country after Prime Minister Brian Cowen confirmed the European Union had agreed to his request for a multi-billion-euro bailout

Critics protested that the sum exceeds the £6 billion of early spending cuts that the Coalition managed to scrape together this year, amounting to £300 per family for Ireland’s bail-out.

British taxpayers will be landed with an increase in the colossal debt burden - already £952billion - at a time of desperate cost cutting.

They will be stung three times because Ireland will receive funds from the European Union, the International Monetary Fund and direct loans from Britain.

But the real anger was from Conservative Right-wing MPs furious that the Prime Minister was in their view failing to live up to the eurosceptic promises he made in opposition.

Bill Cash, the elder statesman of Tory Euro-sceptics, said: 'It is in our national interest to help the Irish but not through this Euro framework. The real issue is the Government saying it will do something about European rules but then acquiescing in another European integration process.'

If Ireland were to default on its debts, losses of around £5billion on toxic bank debts held by Royal Bank of Scotland and Lloyds Banking Group would push the liability to British taxpayers up to £12.5billion - though the bailout should prevent that happening.

Critics argue Britain should not be involved in propping up a currency it does not support.

John Mann, a Labour member of the House of Commons Treasury Select Committee, called for MPs to be given a vote on the Irish bailout.

'What George Osborne has chosen to do is use money from the average taxpayer to bail out the bankers - including British bankers - yet again,' said Mr Mann.

But Mr Osborne insisted today: '"I told you so" is not much of an economic policy.'

He told the BBC: 'What we have committed to do is to be partners, as shareholders in the International Monetary Fund, in an international rescue of the Irish economy.

'But we have also made a commitment to consider a bi-lateral loan that reflects the fact we are not part of the euro and don't want to be part of the euro.

'Ireland is our very closest economic neighbour. I judged it to be in our national interest to be part of the international efforts to help the Irish.'

George Osborne at Millbank this morning. The Chancellor described Ireland as a 'friend in need' as he defended plans to pay more than £7billion into an international bailout worth up to £85billion

We DO need a bailout: Irish PM Brian Cowen and Finance Minister Brian Lenihan last night

However, he did stress that Britain does not want 'to be part of a permanent bail-out mechanism for the euro'.

Asked to confirm the £7billion estimate for Britain's contribution , the Chancellor added: 'It's around that. It's in the billions, not the tens of billions.'

Mr Osborne, who will make a statement to MPs in the Commons later, said: 'Ireland is a friend in need and we are here to help.'

The final bailout total is expected to be between £68billion and £76billion, but it could be as high as £85billion. Britain’s contribution will be between £6billion and £7.5billion.

The Irish Greens said they made the decision on Saturday. The party then sent its two Cabinet ministers into an emergency meeting yesterday to sign off the IMF/EU bail-out.

Taoiseach Brian Cowen was told about the move this morning and Mr Gormley said he expressed disappointment at the decision.

But Finance Minister Brian Lenihan was reportedly unaware of the decision up until half an hour before it was made public.

Mr Gormley said he wanted the current coalition Government to achieve three things before going to the public.

• Produce a credible four-year plan to show they can make the Budgets balance by 2014, expected this Wednesday
• Deliver a Budget for 2011, due on December 7
• Secure IMF/EU funding respecting vital Irish interests and restoring stability to the euro, expected in several weeks.

Mr Gormley said the Greens wanted to spend the next two months working on these crucial issues to 'safeguard the future prosperity and independence of the Irish people'.

Mr Cowen bowed to a week of EU pressure last night and said the once-mighty Celtic Tiger requires a humiliating Greek-style handout to prop up the government and its basket-case banks.

‘The government has today decided that Ireland apply for financial assistance to the European Union,’ he said. ‘European countries have agreed to our request. A formal process of negotiation will commence that will lead to assistance.'

Dark days: Police guard Irish Government buildings as a protester waves the tricolour

European shares and the euro both rose in value this morning as markets welcomed the developments.

The FTSE 100 was up 0.5 per cent, Germany's Dax up 0.6 per cent and the euro had strengthenned to $1.376, while Japan's Nikkei closed at a five-month high after rising 0.9 per cent.

However, experts have warned that the humiliation of Ireland will have a domino effect, threatening the future of the euro.

Fears are rising that Portugal might also need to be saved as the debt crisis tears across Europe, with Spain not far behind. Foreign Secretary William Hague claimed the single currency might not survive.

Mr Osborne and fellow G7 finance ministers held a conference call to agree the basics of the deal.
EU Treasury ministers later issued a statement confirming that the EU as a whole, the IMF and the 16 eurozone countries will all contribute while Britain and Sweden have offered the Irish direct loans.

EU ministers will meet in Brussels this week to thrash out the precise details of who pays what.

But senior Treasury sources revealed that one third of the bailout cash will come from the IMF at a cost of £1.5billion to Britain.

Ireland has become the second EU nation to ask for a multi-billion bailout to help stabilize its debt-ridden banks

Britain looks likely to contribute £3billion to the EU fund but will not make any contribution to the eurozone pot of cash because it is not in the single currency bloc.

Instead, the UK is poised to lend ‘small handfuls of billions’, thought to be another £3billion in direct loan.

While the EU fund money has already been paid to Brussels, the loans will add to the Government’s debts, though they will not add to the deficit because they will be paid back.

Opponents of the bailout point out that the UK is trying to save £7billion in cuts this year, with 25 per cent reductions in many departments over the next four years.

The Dublin government will be forced to copy Britain in announcing a new budget tomorrow, which will include cuts of £13billion by the end of 2014. The Republic currently spends about £16billion more than it receives in taxes.

David Cameron said the UK must play its part because of the ‘incredibly close economic relationship’ between the countries.

‘Ireland is not just our neighbour and friend,’ said the Prime Minister. ‘We export more to Ireland than we do to Brazil, Russia, India, China combined. Our banking systems are linked, our finances and economies are very linked so of course we stand ready to help.’

European leaders have been open about their desire to prop up the Irish to save the euro. The Dublin bailout follows the £94billion rescue of Greece over the summer – to which Britain did not contribute.

Tory MP Douglas Carswell said: 'We shouldn't be paying to help keep Ireland in the euro. If we are going to pay to solve this crisis, we should be helping to pay Ireland to quit the euro.

'Ireland's misery is only going to end when it has its own currency again. At a time of austerity, again we are paying vast sums to the European Union.'

Leading Eurosceptic and former Tory cabinet minister John Redwood also said Britain had no responsibility to contribute to the fund.

He said: ‘I don’t think it’s Britain’s problem, I think it is a euro area problem. Why should Britain have to do it when we are not part of the euro area?’

DEFIANCE OVER LOW TAX ON FIRMS

Despite its economic woes, Ireland has managed to cling on to its incredibly low rate of Corporation Tax.

EU bosses argued that raising the levy would create revenue to plug the black hole in Ireland’s debts and reduce the amount paid by others to bail them out.

But Irish ministers insisted the rate of 12.5 per cent - lower than every major European economy - is a sacred cow which could not be sacrificed.

It has been heavily criticised by other EU nations who argue it gives the country too much of an advantage in attracting overseas investment.

French president Nicolas Sarkozy said this weekend: ‘It’s obvious that when confronted with a situation like this, there are two levers to use: spending and revenues. They have a greater margin for manoeuvre than others, their taxes being lower than others.’

But the Dublin government has fiercely resisted an increase as the low rate is credited with attracting companies to set up shop in Ireland, fuelling the Celtic Tiger’s boom of the past decade.

Multinational firms had already warned they could move elsewhere if ministers decided to increase the tax, which could imperil the Irish economy and in turn cost British business billions in lost exports.

Corporation Tax in Britain is currently 28 per cent, although the Coalition is reducing it to 24 per cent this parliament.

Sam Bowman, head of research at the Adam Smith Institute, said: 'The proposed bail-out for Ireland is a bad deal for the UK. It puts the interests of the European Union and the eurozone before the interests of Ireland, and the British Government should have no part in paying for it.

'Asking the British taxpayer to cough up £7billion shows just how audacious the European Union has become in its desperation to keep the eurozone project afloat.

'The UK successfully avoided entering the eurozone. Ireland was not so lucky, but it entered in full knowledge of the risks involved.

'Bailing out Ireland now would undo much of the benefits that Britain has yielded from keeping the pound and would make a mockery of the spending cuts announced by the coalition last month.

'In the end, Ireland will have to choose its own path out of this crisis. But the British taxpayer should not be held responsible for past mistakes by Irish politicians.'

A source close to Mr Osborne said: ‘We have a very high level of confidence that we will be paid back.’

The developments marked a day of infamy for Ireland after less than 90 years of independence and weeks of denial that any help would be needed at all.

Irish Prime Minister Cowen insisted the bailout did not amount to a ‘loss of sovereignty for Ireland’.

But he faced questions about his own future after being forced to go cap in hand to international financiers - a move which shattered the economic reputation of the Labour government in the 1970s when Britain received an IMF bailout.

With fears mounting over the health of Portugal, Spain and even Italy, the rescue of Ireland might not be enough to save the euro.

The opposition party in Lisbon claims that Portugal’s debt mountain is even bigger than the government admits.