British taxpayers face £6bn bill to bail out failing Irish economy

Downing Street said the UK was responsible for 12 per cent of the 60 billion euros (50.94bn) promised for a Euro stability mechanism that might have to be used in a bid to restore confidence in the Irish economy.

The European Financial Stability Mechanism was signed up to by the former Labour government in the aftermath of the Greek debt crisis earlier this year.

While it does not require upfront investment, all EU members – not just Eurozone countries – are responsible for a share of the guarantees made to underwrite the debts of struggling nations.

Ireland has not submitted any request for help so far but its government is in talks with other EU leaders about its position and there is speculation about whether it can get through alone.

EU chiefs are meeting in Brussels today to discuss what to do about international money market fears – which are affecting other indebted EU countries – that Ireland might default on its debts.

It is thought that Dublin might require help from the European Financial Stability Mechanism as well as from a much larger fund which is the responsibility of Eurozone countries only.

Admitting the UK commitment, a spokesman for Prime Minister David Cameron said: "Stability in other countries – or instability in other countries – has an impact in the UK."

Ireland's economic woes were a hot topic at the G20 summit in Seoul after market jitters about a possible debt default pushed yields on Irish 10-year bonds up beyond nine percent – meaning the country has to pay heavily to borrow at all.

Chancellor George Osborne held a meeting on the fringe of the Seoul summit with his German and French counterparts.

There had been concern in the markets over German moves to force private investors to bear a share of the burden in future bail-outs of countries in crisis.

But a joint statement released by Britain, France, Germany, Italy and Spain, yesterday made clear that "any new mechanism would only come into effect after mid-2013, with no impact whatsoever on the current arrangements".

In the past, UK chancellors have tried to insist that Euro problems were matters for Euro members.

And the Prime Minister was under fire from his own back-bench Eurosceptics, last night, over the possibility that British money might be called on to assist Ireland.

Bill Cash, chairman of the European Scrutiny Committee, said: "Not a penny of British taxpayers' money should go to bail out Ireland."

Another Tory MP, Chris Heaton-Harris, said: "We have had guarantees in the past that the UK taxpayer would not bail out Eurozone countries."

The European Commission has confirmed Ireland has made no request for a bail-out.

Dublin insists that it can handle its affairs and is expected to come up with a plan to rein-in a deficit which has reached 32 percent of GDP – proportionally bigger than the debts that led to emergency measures in Greece.

An Irish Department of Finance spokesman said: "Ireland has made no application for external support. "Ongoing contacts continue at official level with international colleagues in the light of current market conditions."

BANKS PUT BITE ON 'CELTIC TIGER'

The one-time "Celtic Tiger" is in deep trouble for the same reason as many other advanced economies – the cost of propping up banks which relied too much on poor investment schemes based on property prices.

Irish banks drove a boom which everyone envied. But when it turned to bust, it was found they had borrowed more recklessly than anyone else.

Now Ireland is being bracketed with Greece and Portugal in discussion of the Eurozone's biggest problems.

Prime Minister Brian Cowen's government is desperate to avoid any appearance of surrender of sovereignty and still hopes it can calm the markets with more home-grown austerity measures, in a budget due on December 7.

The country's economic problems will be examined in Brussels today and tomorrow when Finance Minister Brian Lenihan attends a meeting of EU finance ministers.

Meanwhile, the price it has to pay in interest in order to sell the government's 10-year bonds, has eased from an 8.9 per cent high after EU assurances.