Last November, Britain played a disproportionate part in the Irish bailout. Of the €67.5 billion of external support, we contributed in three ways: through our membership of the IMF, through the EU's European Financial Stabilisation Mechanism (EFSM) and through a €3.8 billion bilateral loan.
We did this because it is overwhelmingly in our national interest that we have a stable Irish economy, to which we export more than to Brazil, Russia, India and China put together, and to whose people we have more ties of kinship than any other.
While everyone in any position of authority has to deny it, the markets know that there is not a cat in hell's chance that Portugal will not have to seek a similar bailout in the near future. Indeed, the ECB is already propping up Lisbon by buying its bonds. It is not clear when the rescue will happen, but what should be clear is that this time the UK should not be required to assist.
Portugal may well be our oldest ally, but the fact remains that the legality of the EU's bailouts is highly dubious. The use of article 122(2) – meant to cover "natural disasters or exceptional occurrences beyond its control" – to provide EU assistance to a member state whose budgetary situation cannot be blamed on anyone but itself is unjustifiable. Even committed Europhiles such as Christine Lagarde, France's finance minister, claims that the bailouts were "major transgressions" of the Treaty.
Portugal was an anomaly of the last decade: its economy stagnated while others grew, it undertook none of the fundamental competitiveness reforms being urged upon it, ironically, by the EU's Lisbon Strategy, and did not tackle key issues like its high corporation tax. What Portugal needs now is a long term strategy to make it competitive, not a short term sticking plaster.
Ireland, on the other hand, sought a bailout only once the implications of a catastrophic decision to guarantee the liabilities of their banks became clear. It had already undertaken a round of very painful budget cuts: everybody from the Taoiseach down took a pay cut. Furthermore, as George Osborne noted in his statement to the House of Commons on the Irish bailout, "it is a tragedy when they did so much to improve their competitiveness with low taxes and flexible labour markets." Not that they have been thanked by other members of the eurozone for that: the sclerotic, high tax countries are refusing to cut the interest rate of the loans until the Irish raise corporation tax, and are trying to force them to sign up to the Common Consolidated Corporate Tax Base, which many see as the first stage in the harmonisation of corporate taxation.
When in the aftermath of the Greek crisis the EU set up its €750 billion package for future bailouts, the largest share came from a eurozone fund of €440 billion to be established as the European Financial Stability Fund. Yet only €17.7 billion of the external support to the Irish came from that part of the package. The EFSF could easily cover the €60-€70 billion costs of bailing out Portugal while still maintaining its AAA credit rating and leaving enough in the pot to cover another major bailout, and so we should resist attempts to draw further from both the IMF and the EFSM.
Apart from contributing to the IMF portion of a Portuguese bailout, Britain should refuse to take part. There is no justification for forcing our participation and it should be the eurozone alone that should bear the burden. Any steps to force the UK to join in by handing over money through the EFSM should be challenged politically, and if necessary legally as well.