As I watched a few minutes of the film "The Perfect Storm" recently, I could not help but reflect on the economic challenges encircling Ireland. The film buffs in the House today will recall how George Clooney tried his best to get his fishermen back to base through a once-in-a-generation storm, created by the coming together of three much smaller but still deadly storms. Just as in that story, we are seeing a clear convergence, and it is of economic crises engulfing the emerald isle. As we have heard, that confluence has far-reaching economic implications, not only for Ireland but for our trading partners in the eurozone and, as a result and most importantly, for the UK economy. That is why the Government are absolutely right to take this specific action in this specific situation to help steer us to a departure from that film's finale and underpin a much more sustainable future for the Irish economy.
That is why it is important to reflect on some of the factors that have created this crisis, on why helping Ireland is so important to our national interest at that this point in time, and on why we are left with no option other than to make this bilateral loan to Ireland. We have talked about the three converging elements: the banking crisis, the sovereign debt crisis, and how the complicating factor of Ireland's membership of the euro is exacerbating those issues. The credit crunch cruelly revealed the extent to which the Irish banks had overextended themselves, and the fact that they were no longer able to access funding on the open market. As a result, the European Central Bank had to step in. The Irish Government had sought to guarantee all the bank liabilities, and the €440 billion promise that they had put in place was twice the size of the Irish gross domestic product. Those losses brought about a complete loss of confidence in the markets, and finally the Government had no choice but to face up to a looming sovereign debt crisis and seek international assistance.
Joining the euro did not, in itself, cause the challenges that Ireland faces, but it exacerbated them; that is where I disagree with Dr McDonnell. When the banks binge-borrowed on the back of lower interest rates, it created all sorts of problems that could not have arisen had the punt still been in place. Now, sadly, Ireland's euro membership is acting as a straitjacket. Independent monetary policy and exchange rate flexibility are not an option; they are not available to help Ireland navigate its way out of this terrible crisis.
I am a confirmed Eurosceptic, and my mother happens to be Danish, so I am proud that when this country worked hard to save sterling, others with more Viking blood than me stepped forward to ensure that they kept their kroner-and quite right too. It is also important to note that both Denmark and Sweden will join the UK in offering loans to Ireland in this unique situation-loans of, I think, €1 billion, or £850 million in proper money.
Despite Ireland's recent history and my views on the euro, I believe that in these unique circumstances the Chancellor is right to extend the bilateral loan to Ireland. The reason is simple: if the Irish storm gathers more momentum it will have major implications not just for the people of Ireland but for all of us in the United Kingdom.
We should help our neighbour in need, and it is in our national interest to do so. The recent Office for Budget Responsibility report underlined the strong contribution that will be required from net trade to help get us out of the crisis that we ourselves face. We have talked about the size of the UK's exports to Ireland, but the report goes on to say:
"If recent events significantly reduced Irish demand for UK exports there would be a material impact on UK export growth."
There is no question about that.
Furthermore, we must take the steps to protect UK banks. Again, the OBR estimates that the exposure runs at £82 billion, £4.6 billion of which is exposed in the Irish sovereign debt. In its November report, it states that its estimate of the direct net cost or benefit to the taxpayer of the Government's interventions in the UK banking sector may be affected by the exposure of UK banks to Irish liabilities. There is a clear and important reason for us to take this step forward and mitigate the risk, as well as mitigating the risk of contagion. Given the lack of time available, I simply want to stress my belief that it is vital to support the Government in taking these steps.