Ouagadougou, Burkina Faso (IRIN) – One year on from the start of several months of popular revolts in Burkina Faso, the situation has settled down, but the calm is fragile, say observers.

The government has adopted several measures to appease its critics, including upping civil servant salaries, intensifying the fight against corruption, and subsidizing food prices, but high prices continue to pose huge problems for the poor. One in four youths are unemployed, and it is widely believed that the government is out of touch with the priorities of its citizens.

Protests began last year on 21 February 2011 following the killing by police of student Justin Zongo in the city of Kondougou in the central-west. The incident led to several months of civilian demonstrations against police brutality, impunity, government corruption and high prices in Ouagadougou and other cities.

At the same time (between March and May) a series of mutinies in the army threatened to endanger the regime of President Blaise Compaoré, who has been in power since 1987. Many soldiers were demanding that arrears on their daily allowance be paid. However, protests died down when the president’s guard crushed a mutiny in the country’s second-largest city of Bobo Dioulasso in June 2011. At the same time, many civilians stopped their protests and broke away from the soldiers.

Since then the soldiers’ allowances have been paid; and a new head of the army has been appointed as well as several senior commanders as part of a restructure in which 600 soldiers have thus far been demobilized. But it is unclear whether these changes have succeeded in appeasing the army’s rank and file. Meanwhile, some 300 soldiers have been imprisoned because of their alleged role in the protests and violence.

“Things have returned to normal, but they are not like before – that isn’t possible,” said Hamidou Idogo, editor-in-chief of the Journal of Thursday, a satirical newspaper known for its independent stance. “As long as Blaise Compaoré is in power and has not stated he will not stand in 2015, the crisis will not be over,” he told IRIN.

Compaoré has been president since 1987. His political party is in the midst of trying to revise Article 37 of the constitution which stipulates a two-term limit, enabling him to run again in 2015.

Protests continue on a small scale. Most recently, for instance, on 7 February 2012 a demonstration was organized in the city of Tougan in the northwest to protest against the poor state of the roads, and turned violent when the house of the Member of Parliament for Tougan, Saran Sère, was burned.

On 10 February 2012, students from the Polytechnic University of Bobo-Dioulasso protested against the institution’s poor infrastructure, rising living costs and declining teaching standards.

“There’s always a cauldron of discontent bubbling away, accompanied by lots of small-scale social conflict,” said a Western diplomat who preferred anonymity. “Lots of people are still unhappy,” he added.

“Climate of mistrust”

While noting that violence is not a solution, few have condemned it with vigour, said Germain Bitiou Nama, managing editor of the Independent newspaper in a 10 February editorial: “The climate of mistrust is heavy, particularly between young people and those who pass for leaders and who have shown no ability to make things change.”

The root cause of the events of last year: the enormous gulf between the rulers and citizens, has not been addressed, say analysts, and even now a small spark would be enough to trigger a large event, analysts, journalists and trade unionists told IRIN.

However, the government has made some concessions since last April. It increased the salaries of 86,000 employees by 5 percent in January 2012; created housing allowances for some employees; and implemented the oft-delayed promotions of civil servants – measures which collectively cost the government US$19 million, according to Alain Edouard Traoré, minister of communications and government spokesperson.

But the government has not yet had much success in curbing steadily rising food prices – a problem that is hitting poor households across West Africa. High prices and a poor harvest in much of Burkina Faso have thrown 1.7 million people (10 percent of the population) into food insecurity.

In May 2012 the government announced it would lower the price of imported and local rice, sugar and cooking oil by imposing subsidies. But even with these subsidies, the price of cooking oil and rice rose yet again. A sack of rice increased from 16,000 to 18,000 CFA between July 2011 and the beginning of 2012; a litre of cooking oil has risen from 800 to 1,000 CFA in the same period. “We are suffocating: life is too expensive. We must change things,” said Nathalie Noukoubri, who owns a local bar in Ouagadougou and is a member of the women’s association of the informal sector.

However, government spokesperson Alain Traoré told IRIN the government has little room for manoeuvre when it comes to controlling these prices, given its dependence on the world market. “To impose prices on merchants would basically be to set up a police state”, he told IRIN.

The government was supposed to set up a price observatory to try to monitor and to some degree control prices but although a decree has been passed it has not yet started operating, according to Augustine Blaise Hien, general secretary of the National Confederation of Workers of Burkina Faso.

For Hien, a crucial problem is the lack of prospects for young people, including graduates, whose unemployment rate is about 25 percent.

“It’s nice to go to university, but how many students find employment related to their educational level?” said Augustin Diabri, a second year student of archaeology at the University of Ouagadougou.

While Burkina Faso’s economy grew on average by 5.4 percent between 2000 and 2011, and per capita gross domestic product rose from $233 to $670, according to the International Monetary Fund, the country remains one of the world’s poorest, and is ranked 181 out of 187 in the 2011 UN Human Development index.

However, Diabri says the crisis has also had a positive effect in that people’s awareness of their rights has mounted, and the president has been forced to understand this.

Impunity, corruption

In terms of good governance, there have been some improvements. A few individuals have been put on trial for economic crimes over recent months: In January Ousmane Guiro, ex-head of customs, was arrested and charged for embezzlement and corruption, accused of stealing $4 million. His trial is ongoing.

But the general feeling is that a skewed power balance between the rulers and the ruled remains amid a climate of impunity and corruption. One oft-cited example of this, residents told IRIN, was a traffic dispute between a mechanic and Justice Minister Jérome Traoré on 19 February 2012. The mechanic yelled at the minister, not knowing who he was; as a result the minister ordered that he be arrested and beaten up. The minister was then called upon to resign 48 hours later.

Burkina Faso ranks 100 out of 182 countries listed in the 2011 Transparency International perceptions of corruption index.

It is as yet unclear whether Compaoré will run again in 2015 presidential elections, but constitutional law aside, many say the opposition is currently too weak to pose a challenge. Samir Gadio, West Africa economist at Standard Chartered Bank in the UK, told IRIN: “The Burkinabe opposition is weak and fragmented. As such, the opposition’s ability to capitalize on student or teachers’ protests, or even some discontent in urban centres, remains limited.” Further, he added: “The credibility of the opposition is also an issue, as many people feel they may not be better off under a new regime.”

Perhaps the greatest threat to the current regime is parts of the military, whose 2011 mutiny was “unprecedented” said Gadio. While calm has more or less been restored, it is still unclear whether the root causes of their discontent have been met, and future mutinies cannot be ruled out.

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Theme (s): Food Security,

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Dakar, Senegal (IRIN) – “The Forces Nouvelles played a very important role in our victory and that has to be taken into account,” one of Alassane Ouattara’s leading supporters acknowledged as the news from Abidjan pointed to Laurent Gbagbo’s imminent departure.

For the past four months Ouattara has been recognized internationally as Côte d’Ivoire’s elected president, but his final access to executive power owes much to the force of arms. While military support from the UN and France may have proved pivotal in destroying Gbagbo’s last arsenals, the former rebels known as Forces Nouvelles (FN) made up most of the newly formed Forces Républicaines de Côte d’Ivoire (FRCI), which pushed south into the main city Abidjan after winning remarkably easy victories in the center, east and south of the country in the past week.

Who are the military forces behind Ouattara and how will they proceed once their side takes power?

At a recent celebratory rally in the political capital Yamoussoukro, Ouattara’s Prime Minister Guillaume Soro introduced the crowd to several FN senior commanders: Soumaila Bakayoko, Cherif Ousmane, Tuo Fozié and Touré Hervé, saluted as being amongst the architects of the FRCI’s victories. Ouattara supporters also talk of the key role played by Col Miche Gueu. These men are associated with the September 2002 rebellion, which nearly dislodged Gbagbo. The Forces Nouvelles – a collective of three rebel factions – made offensives against Korhogo, Bouaké and Abidjan. Their secretary-general and main public voice was a then 30-year-old Soro, known primarily as a former student leader.

Ivoirian critics of Ouattara and Soro have not welcomed the sense of déjà vu. “This man is meant to be a prime minister, but he is forever talking about the need for a military offensive and moving on Abidjan,” a man in the Yopougon District said. Many observers noted the difference between Ouattara’s rhetoric and that of Soro in the weeks after the disputed November 2010 presidential election, with the prime minister much quicker to push for a military solution.

The Forces Nouvelles included soldiers, particularly northerners, defecting from the national armed forces, but also combatants from outside Côte d’Ivoire and the dozo, traditional warrior hunters – said to have mystical powers – who have long acted as informal community police.

In 2006 one of the FN leaders, Martin Kouakou Fofié, was hit with UN sanctions over allegations of child recruitment, abductions, sexual abuse of women, arbitrary arrests and extra-judicial killings by troops he commanded.

Whatever compromises were made in numerous peace accords signed in the years since the rebellion, the Forces Nouvelles have effectively retained control of national territory in the west, north and center. A longstanding concern of Gbagbo supporters and neutrals has been the existence of a state within a state, whose sovereignty has gone largely unchallenged.

Rebuilding

For Vincent Gnizako, a long-time Ouattara supporter who heads the Paris branch of Ouattara’s Rassemblememt des Républicains (RDR) party, the incoming government will be taking over “a new Côte d’Ivoire that needs to be reconstructed after 10 years going backwards.” Gnizako said the RHDP would supply the ministerial expertise, but the military forces could not be overlooked.

Ouattara and Soro now head a broad-based political-military coalition. The Rassemblement des Houphouëtistes pour la Paix (RHDP) brings together the RDR, the Parti démocratique de Côte d’Ivoire and several smaller parties. Ouattara backers told IRIN his first priority would be national reconciliation.

Pro-Ouattara activists have reacted defensively to mounting criticism of their combatants in recent weeks. “The FRCI are establishing peace throughout the country,” Maurice Guikahué, a senior figure in the RHDP, told IRIN. “The FRCI are disciplined. They do not commit violent acts; they respect human rights.”

Guikahué said the FRCI had been through regions of the country dominated by Gbagbo’s own Bété ethnic group “without laying a hand on a single person”, instead holding meetings with residents and explaining they were there “solely to establish peace”. He called reports of crimes by the FRCI “propaganda”.

But Ouattara opponents paint a damning picture of serious human violations by at least some of the pro-Ouattara forces that have taken over towns and neighborhoods in recent weeks. Speaking from Abidjan, a youth with the pro-Gbagbo Jeunes Patriotes told IRIN: ” I have been to different districts of the city – Koumassi, Abobo, Port-Bouët – and I know what has been going on: looting, rapes and people having their throats cut. We know who the perpetrators are and they are doing this out in the open.”

Human Rights Watch has documented extra-judicial executions by Ouattara’s forces allegedly against Gbagbo supporters and combatants detained in Abidjan territory taken by Ouattara forces in recent weeks. “The killing of civilians by pro-Ouattara forces, at times with apparent ethnic or political motivation…risks becoming a crime against humanity should it become widespread or systematic,” HRW says.

A local journalist told IRIN that on 5 April pro-Ouattara forces threatened workers at an Abidjan office building. The forces lined up civilian security guards and ordered them to undress, he said. “They fired at office doors to break in and ordered people to hand over their car keys. They took off in two luxury cars and said they’d be back.”

The International Crisis Group has said worldwide support for Ouattara could unravel if the military that’s behind him acts unlawfully. “[They] should take all measures to ensure respect for international humanitarian law. They should understand that international support for Ouattara’s election victory, and his legitimacy, will quickly evaporate if their military campaign becomes responsible for mass atrocity crimes.”

“Ouattara’s side should avoid any kind of revenge talk, Crisis Group senior West Africa analyst Rinaldo Depagne told IRIN. “The pro-Ouattara forces know they will be watched closely and this should constrain them, but the problem in the far west is there are not as many witnesses so they could carry out exactions.”

The RDR’s Gnizako acknowledged possible excesses on all sides, but warned against premature condemnation of the FRCI for the recent killing of civilians in the western town of Duékoué. He pointed out that circumstances were still not clear and a large number of armed, pro-Gbagbo militia has been active in the town. He stressed Ouattara’s willingness to hold an enquiry. “If people from our side were involved, they should be brought to trial. Justice must be done.”

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George Osborne said that Britain was “back on track” today after hailing his fiscal watchdog’s report as proof that the government’s plan to take the UK out of the financial danger zone and “balance the books” was working.

The chancellor seized on the forecasts outlined by the Office for Budget Responsibility to say that the government would “stick to the course” he set out in his June emergency budget.

Osborne said the OBR’s central view was that there “will be no double-dip recession”, with “considerably higher” growth this year than predicted in June.

In a statement to the Commons, Osborne said the government had set the British economy back on the path to recovery.

“That is not only the judgment of the OBR, it is the judgment of the IMF, the OECD, the European commission, the Bank of England, and all the major business organisations in this country,” he said.

The chancellor admitted that the independent forecasts should be treated with the same degree of caution as any forecast, but he said the OBR’s report showed the economy was growing, more jobs were being created, and the deficit was falling.

He told MPs: “Their central forecast is for sustainable growth of over 2% for each of the next five years and employment rising in each and every year. And at a time when markets are gripped by fears about government finances across Europe, today we see that the government was absolutely right to take the decisive action to take Britain out of the financial danger zone. Britain is on course both to grow the economy and balance the books – something some people repeatedly said would not happen.”

The tax and spending watchdog cut its growth forecasts for coming years, although it remains markedly more optimistic than other forecasters, including the Organisation for Economic Co-operation and Development. As expected, the OBR upgraded its forecast for growth this year to 1.8% from 1.2% in June, reflecting the economy’s surprisingly strong performance in the summer. This matches the OECD’s latest prediction.

But for next year, the independent OBR cut its growth estimate to 2.1% from 2.3% – which is far more bullish than the OECD’s prediction of 1.7%, and City economists’ forecasts.

In its report, published today, the watchdog said the outlook for the economy was “inherently uncertain” and recovery would be slower than after previous recessions.

The impact of government deficit-busting measures – which include a hike in VAT to 20% and an £81bn package of spending cuts – would lead to “sluggish growth” in the medium term, it went on.

But the OBR – formed in May to make an independent assessment of public finances and the economy – did revise down its projections for public sector job cuts over the next four years from 490,000 to 330,000.

The OBR, headed by Robert Chote, the former Institute for Fiscal Studies chief, is also significantly more optimistic about 2012, when it expects Britain’s economy to grow by 2.6%, revised lower from 2.8% in June. This compares with the OECD’s prediction of 2% growth.

Today’s report also predicted a “gradual rebalancing” of the economy from one built on debt to “an economy where we invest and export”.

Osborne said the OBR forecast a rise in employment in every year of the parliament, with total employment expected to rise by more than 1 million from 29 million to 30.1 million.

The unemployment rate was expected to be 7.9% this year, down from the earlier forecast of 8.1%. The forecast for next year was unchanged at 8%.

The OBR’s decision to cut the predicted reduction in public sector jobs to 330,000 followed the government’s decision “to cut welfare bills rather than public services”, said Osborne.

“Those headcount reductions that still need to take place will happen over four years, not overnight. And the OBR forecast is that private sector job creation will far outweigh the reduction in public sector employment.”

Osborne announced a cross-government growth review to conduct a “forensic examination” of how every part of government can do more to “remove barriers to growth and support new growth opportunities”, which will report by next year’s budget.

Osborne also announced that from April 2013 there will be a new lower 10% rate of corporation tax on profits from newly commercialised patents to encourage hi-tech business.

He told MPs the move had prompted a £500m investment from pharmaceuticals giant GlaxoSmithKline, which would create an estimated 1,000 new jobs.

He said that “brick by brick we will remove the barriers that are holding Britain back” .

The chancellor also announced the publication of a “significant programme of corporate tax reforms” for consultation aimed at attracting international investment and business.

He also used his statement to reveal that the bilateral loan to Ireland will be worth £3.25bn.

He told MPs that the loan was “in Britain’s national interest” and stressed that the UK would not be part of the permanent bailout mechanism.

Of the loan, Osborne said: “It will help one of our closest economic partners manage through these difficult conditions. I should also tell the house that the eurozone finance ministers, without me present, discussed a permanent financial stability facility. I have made it clear in the subsequent ECOFIN meeting that the UK will not be part of that.” Economic policy Office for Budget Responsibility Economics Government borrowing Budget deficit George Osborne Hélène Mulholland Julia Kollewe guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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7.21pm: Cowen says:

It is very important for people to understand that…any further delay in this matter would in fact weaken our country’s position.

7.19pm: He is asked how betrayed he feels by the Green party, who today called for an immediate election. “That [betrayed] is not a word in my lexicon,” he replies.

It has always been my intention to ensure we get the job done in the interests of the party.

He reiterates that there will be a dissolution of parliament in time.

Cowen claims he does have the confidence of his coalition partners.

7.15pm: Now he’s taking questions. Cowen says he has the “full support” of his colleagues. The “most important thing for this country” is passing the budget on 7 December.

7.14pm: Parliament will be dissolved in the New Year. Statement over, he has not resigned.

7.13pm: Cowen is up. He says there are times that the national imperative outweighs political concerns. The government should continue to discharge its operations, he says. There will be a time for political accountability but it should not interfere with attempts to facilitate the passing of the agreed measures.

7.09pm: Still waiting for Cowen to start speaking. Apparently there is a problem with the microphones at the lectern. It never rains, it pours…..

It seems that sentiment is now that he won’t quit.

Henry McDonald says:

“Respected RTE political reporter Brian Downing claims that Cowen will avoid standing down tonight. He hears that Fiann Fail ministers believe they have a duty to push through a budget while the IMF and ECB are in Dublin.

7.00pm: The Irish Independent’s political correspondent, Aine Kerr, has tweeted :

Holding statement expected from Taoiseach Brian Cowen along lines of needing to pass Budget. #bailout

If correct, that’s unlikely to satisfy his critics.

6.55pm: Henry McDonald says the speculation is that the Taoiseach is about to step down “but with Cowen you never know”.

6.52pm: Ahead of Cowen’s statment you can read our latest lead story on the crisis . Henry McDonald writes:

With the International Monetary Fund and the European Central Bank delegations in Dublin monitoring the situation closely, pressure mounted on Brian Cowen to leave his post as taoiseach as his Green coalition partners called for a January election and independent MPs threatened to vote against next month’s crucial budget. Such a move could block its passage through parliament, paralysing the government. Sources in the ruling Fianna Fáil party told the Guardian that backbenchers wanted Cowen removed.

6.43pm: Good evening, Haroon here. It’s just been announced that Cowen is to make a statement at 7pm . Will this be the moment he caves in to pressure to resign? I’ll be following it live here.

6.19pm: This crisis looks set to run into the night, so here’s a round-up of today’s events.

– Ireland’s decision to seek a financial rescue package from the European Union and the IMF has sparked a political firestorm that could force the resignation of Taoiseach Brian Cowen – Cowen is meeting with government ministers tonight to discuss the crisis (see 5.33pm ) – The Irish Green party, the junior partner in Cowen’s government, have demanded a general election in January, making a vote inevitable (see 11.57am ) – Two independent members of the Irish parliament have said they will not support the budget due to be presented in December 7 (see 2.32pm and 3.10pm ) – George Osborne has said Britain will support its “friend in need”, possibly with a bilateral loan. (see 4.17pm to 5.23pm ) Some MPs are opposed to bailing out the euro, but it appears the UK’s support will be approved if needed – The cost of insuring Irish, Portugese, Spanish and Greek government debt rose amid the tension, as City investors anticipated a new phase of the financial crisis (see 3.35pm )

So with that, I’m going to hand over to my colleague Haroon Siddique . Thanks for reading, and for all the excellent comments so far.

6.01pm: Sources within Fianna Fail have told The Guardian tonight that they are already considering 16 December as the date of a general election if Brian Cowen dissolves the Dail tomorrow.

He is coming under sustained pressure tonight to hand in his resignation to President Mary McAleese tomorrow morning.

Henry McDonald also reports that the government’s four year economic plan is scheduled to be published by the Department of Finance on Wednesday — assuming there is still a government stil in place.

Reuters is also reporting that the opposition Labour party has said there is no way they could form a government with Fianna Fail, but that they are confident they could form a coalition with Fianna Gael.

5.51pm: Credit rating agendy Moody’s revealed this afternoon that it is preparing to hit Ireland with a substancial downgrade.

Moody’s announced that the bailout was likely to make Irish sovereign debt riskier, as it would transfer liabilities from its banking sector onto the state:

A multi-notch downgrade, leaving the rating of the Republic still within the investment-grade category, is now the most likely outcome of our review of the sovereign credit.

You could argue that Moody’s is a little late to the party. It currently gives Ireland an Aa2 rating, two rungs down from the Triple-A gold standard, and could drop it seven notches before putting the country into junk status.

This feels like a good time to round up the action from the City, where the FTSE 100 closed 52 points lower at 5680 — blowing something of a raspberry at the €90bn Irish bailout.

Markets also closed lower in Spain (-2.7%), Portugal (-1.2%), Italy (-1.9%) and Ireland itself (-1.4%). Quite an underwhelming response, all in all.

The euro has also suffered further losses, falling to $1.3588 against the dollar. That’s a fall of 2 cents from its early high.

5.46pm: Benedict Brogan of the Daily Telegraph says that George Osborne has “put his cheque book away, and got out the veto card” , having watched the discussions about Ireland.

Brogan points to questions from two Conservative MPs, David Ruffley and Bernard Jenkin, who asked whether Osborne would block a new EU Treaty if it did not exempt the UK from the permanent EU bailout mechanism that will be debated next month .

Osborne’s response — “We would only accept a Treaty change if it creates a bail-out mechanism which we are not part of. Of course, a treaty change requires unanimity” — is a clear sign that the UK will push to be kept out of future eurozone bailouts, Brogan says.

5.33pm: The political crisis in Dublin has been gathering steam in the last hour, while Osborne was talking in the House of Commons. Brian Cowen ‘s grip on the prime minister’s job may be slipping.

Henry McDonald reports that Fianna Fail ministers are holding crisis talks tonight as pressure builds on Brian Cowen to resign. Three of his back benchers are now calling for him to stand down as Taoiseach.

The fiscal crisis has rapidly evolved into a political crisis for Cowen’s coalition.

5.23pm: That’s the end of George Osborne’s statement on the Irish rescue package. Plenty of interest from MPs – particularly from the eurosceptic wing of the Conservative Party. Osborne did not reveal too much new information — it was interesting that he cited Brian Cowen’s prediction that the total package could reach €100bn.

A bilateral loan is clearly still on the table — with Osborne suggesting that this is a good way for Britain to help its close friend and neighbour without getting dragged too deeply into the European side of the rescue.

Both sides of the House manage to agree that Ireland should be supported, while disagreeing about the political lessons of its plight. Rachel Reeves , Labour MP for Leeds West, argued that it showed the folly of making deep austerity cuts when the global economy is fragile.

Osborne, though, insisted that the crisis backs up his drive to cut Britain’s deficit.

5.17pm: MPs are keen to know what exchange rate a bilateral loan will be set at — an important issue, given that Britain’s own borrowing costs are fluid, and have been generally falling throughout 2010.

Osborne will not speculate, but suggests that the bilateral loan rate will not be punitive:

We are not seeking to make a buck out of this. We are looking to help a friend in need.

5.11pm: Can Britain really risk borrowing more money, just to lend it to Ireland, asks Nadhim Zahawi, MP for Stratford-on-Avon.

Surely, says Zahawi, the priority of the coalition government should be to keep the UK out of the “financial danger zone”, given the nerves in the financial markets

Osborne responds that:

Sovereign debt concerns are very, very heightened at the moment, that is a statement of the obvious.

Osborne has also told parliament that the bilateral loan would not add to the UK deficit, as Britain will receive an asset in return for the loan.

“My understanding is that, of course, it will add to borrowing but we will get an asset in return – in other words, an Irish commitment to pay back the loan, and it will not add to the deficit,” Osborne said.

5.04pm: Ben Bradshaw , Labour MP for Exeter, asks Osborne whether he has any regrets at all urging the public to “Look and learn from across the Irish Sea” in that 2006 article in The Times.

It’s a case of “Non, je ne regrette rien” from Osborne (although he doesn’t actually pay homage to Norman Lamont by saying it). Instead, he responds that:

There were plenty of Labour ministers who stood here praising what Ireland was doing to make itself competitive. The tragedy is that they did so much to make themselves competitive, but did not regulate their banking sector.

We in the UK know the cost of that.

4.56pm: Douglas Carswell , Conservative MP for Clacton and a leading eurosceptic on the government backbenches, warns that Britain now finds itself deeply intwined in the eurozone. He asks Osborne whether he agrees that the UK is “a member of the eurozone as a debt union”, thanks to the Lisbon Treaty.

Osborne responds that there are several commitments which the UK has entered into, “which I didn’t support at the time.”

The chancellor also rejects a call from another MP that Ireland should be forced to raise its 12.5% corporation tax. It would not be in Ireland’s interest to force through tax changes that “lead to an immediate flight of international businesses.”

4.48pm: There does not appear to be much enthusiasm in the House for Britain’s involvement in the Irish rescue, but also little suggestion that it will be blocked.

Alan Beith , Liberal Democrat MP for Berwick Upon Tweed, warns that the public were already angry about having to bailing out mismanaged UK banks two years ago:

They will be even angrier about having to bail out even more mismanaged Irish banks

Chris Heaton-Harris , Conservative MP for Daventry, asks for reassurance that Britain will only lend Ireland money if we are confident it can be repaid.

“The answer is yes,” Osborne responds.

Another MP asks whether, when Osborne says a British bilateral loan would be “billions, not tens of billions”, that is on top of our other contributions through the EFSM and the IMF?

Osborne says the final details have not been agreed, but explains that the total UK contribution will be in single-digits of billions.

4.44pm: David Blunkett , Labour MP for Sheffield Brightside and Hillsborough, says that his constituents will not understand why another £100m cannot be added to the Irish bailout to help Sheffield Forgemasters (the engineering firm who saw an £80m loan cancelled in June )

Osborne indicates that the two cases are rather different.

4.40pm: Alistair Darling , the former chancellor, defends his decision to sign Britain up to the EFSM. He argues that the possible bilateral loan underlines that it is “in Britain’s interest to help sort out the problems of Ireland.”

Darling also wants to know how much of the rescue package will be used to recapitalise Ireland’s banks.

Osborne indicates that the package will mean that both Ireland and its banking sector can avoid seeking funding in the wholesale markets for some time, but full details are not yet available.

4.38pm: Conservative MP Andrew Tyrie says that the public will be “shocked” to hear that the UK is helping to bail out a member of the eurozone. Can he guarantee that Britain will not provide any more funds to the €60bn European Financial Stability Mechanism?

Osborne responds that he is not in favour of topping up the EFSM to “make good” any funds committed to Ireland.

4.32pm: Osborne explains that any bilateral loan will be in the “billions, not the tens of billions”.

He also explains that any support provided from the €60bn EFSM fund (which Darling agreed to support back in May), would only be provided if Ireland defaulted on its debts. A bilateral loan, though, would be a full injection of funds into Ireland. No indication on what interest rate we would set.

Osborne also acknowledged that Darling had been keen to keep Britain out of the €440bn EFSF facility. The chancellor might not like our involvement in the €60bn mechanism, but he is not planning to pull us out of it.

Osborne also tried to dampen any debate on the single currency:

I am dealing with the situation as I find it today. We can have a debate about the euro at another time.

4.29pm: Alan Johnson, the shadow chancellor, now responds. He indicates that Labour will provide its support to the rescue package — but wants to know why a bilateral loan is necessary, and what interest rate any loan will be pegged at.

Johnson also flags up Osborne’s notorious newspaper article from 2006, hailing the Irish economic recovery (see 10.10am ).

4.27pm: Osborne also says that the UK is still considering offering a bilateral loan to Ireland. He explains that this is very much in Britain’s national interest – given that Ireland takes 5% of British exports, which is more than Brazil, Russia, India and China combined.

A bilateral loan will “recognise the deep connection between our two countries”, Osborne says.

In conclusion, he says it is a “tragedy” that Ireland is in its current predicament, having done so much to improve its economy in recent years, and again describes Ireland as a “friend in need”.

4.21pm: Osborne explains that around one-third of the rescue package will come from the IMF, and the other two-thirds will come from the European Union.

He also tells MPs that Brian Cowen has indicated that the final rescue bill will be no more than €100bn.

The European funding will come from two sources, the €440bn European Financial Stabilisation Fund (financed by members of the eurozone), and the €60bn European Financial Stabilisation Mechanism – which all 27 members of the EU have subscribed to.

Osborne reveals that he has opposed Alistair Darling ‘s decision to sign up to the EFSM “two days before we took office”.

“The EU wil lend money to Ireland on behalf of all 27 members, and the UK will pay its share.”

4.17pm: George Osborne has just stood up in parliament to give the statement on financial support for Ireland.

The chancllor starts by explaining that it is in the UK’s national interest for Ireland to have a stable economy and banking system:

The current Ireland situation had become unsustainable

Osborne also reveals that the UK government has been working behind the scenes with the G20, the International Monetary Fund, the European Union and the Irish government in recent weeks – in case Ireland had to apply for financial help.

4.13pm: Support for the Green Party’s position in the Republic has come from their counterparts across the border in Northern Ireland, Henry McDonald reports.

Speaking after the Irish Green Party called for a general election in January 2010 (see 11.57am ) , Green leader in the north Steven Agnew said their southern counterparts had put the national interest ahead of party.

“Since entering government in Ireland in 2007, The Green Party has worked consistently to fix and reform the economy while building in sustainability measures to protect the country in the future.

The Green Party is acting responsibly by ensuring that there will be a budget agreement before any elections,” Agnew said.

He added: “I think our own Assembly in Northern Ireland should take heed of this and ensure that it too agrees a four year-budget before the elections and put the needs of Northern Ireland ahead of party political interests.”

3.48pm: We’re expecting that George Osborne will give a statement to the House of Commons about the Irish rescue package in about 30 minutes (Parliament is currently discussing the recent Nato Summit).

It will be fascinating to see how many MPs voice their opposition to Britain’s involvement in the deal, following the leads of Conservative MP Douglas Carswell (8.40am) and Labour MP John Mann (1.25pm).

3.35pm: Here’s a scary thing – the credit default swap on Greek government debt just jumped over the 1,000 basis point mark – a 37bp rise on the day.

That means that bond-holders now have to pay more than €1m to insure €10m of Greece’s debt for five years – implying a serious risk of default or restructuring.

As I mentioned earlier, Portugese CDS are also up around 40bps, at 460bp. Irish government debt is also being hit, with the five-year CDS rising 25 basis points at 530bp. Not what you’d hope for, if you’d just agreed to seek a landmark bailout that is being billed as the saviour of the eurozone.

Spanish debt is also suddenly looking riskier – up 20 basis points at 281bp.

The trigger for these sudden rises is the politicial uncertainty in Ireland, and the alarming prospect for the City that the Irish budget might not be approved. That could send then entire €90bn rescue deal crashing down, traders fear, dealing a potential death blow to the Irish banking sector – sending shockwaves across the European economy. Live blog – market down

We aren’t at that stage yet, of course. With the FTSE 100 now 62 points lower at 5670, there is disappointment in the market, but no panic. Yet.

3.19pm: Ireland’s main opposition party is now questioning whether the Irish government can pass its cost-cutting budget next month.

Michael Noonan, Fine Gael’s finance spokesman, is questioning whether the government will last until December 7 — especially now that two independent MPs have withdrawn their support (see 2.32pm):

It seems to me that as things progress, it’s going to be difficult for the government to continue as far as budget day and maybe the best thing would be an immediate election.

But has the political pressure mounts, the scene is eerily quiet in the Irish parliament. As Irish radio commentator John McGuirk noted this morning – while the UK Parliament will today debate the financial situation in Ireland the Dail is closed until Tuesday….the highest paid politicians in Europe don’t do Mondays!

Also…the Irish Green Party has just clarified to The Guardian that it will support both Brian Lenihan’s four year economic plan and the budget on 7 December. This is despite calling for a general election for the second half of January 20111.

The focus now shifts, the Greens say, to the Independent members of the Dail as to whether they will support a budget in the parliament or leave Ireland in further fiscal chaos.

2.44pm: Portugal’s prime minister, Jose Socrates, has hit the airwaves to insist that his country does not need a bailout.

Socrates told Portuguese radio station TSF that he was confident that the Irish rescue package would prevent contagion spreading across the eurozone.

The country does not need any help…What the country needs is to do what is necessary, to approve the budget, and to continue in its efforts.

As reported earlier (1.47pm), the financial markets do not share Socrates’ confidence – with the cost of insuring Portugese government debt rising by around 9% today.

2.32pm: Ireland’s crucial December budget appears to be on a knife-edge this afternoon, after two independent members of parliament threatened to withdraw their support.

The move, by two TDs who provide crucial support to Cowen’s coalition government, means that an early general election now looks certain, Henry McDonald believes:

Independent Kerry TD Jackie Healy-Rae has issued a statement saying he can “no longer honour his word” to the Fianna Fáil-led Government and the time has come to go to the people.

He said all political parties should have the chance to offer their remedies for the situation, giving the Irish people to cast their own judgment.

Meanwhile, Independent deputy Michael Lowry has said Fine Gael and Labour should now sit down with the Finance Minister Brian Lenihan to reach agreement on budgetary targets, because “they are certain to be in government”, possibly before the end of January.

He believes it is time for the two main opposition parties to show that they are “ready to take power”, and they can exercise “responsible leadership”.

Lowry’s point is highly relevant given that a new coalition comprised of Fine Gael and Labour would face the same fiscal crisis as the current administration.

2.20pm: What would have happened if last night’s bailout had not been agreed?

Larry Elliott, our economics editor, argues in this video that we would have been facing a rerun of the collapse of Lehman Brothers .

2.11pm: There have been scuffles outside the government buildings in Dublin. Here’s a line from the Press Association:

About 50 protesters, some from Sinn Fein, forced their way into a security hut at the front gates of Government Buildings. Among the demonstrators was one of the party’s TDs, Aengus O Snodaigh.

1.47pm: The Irish bailout has failed. That’s the stark verdict from Zerohedge , the financial blog, after the euro slipped into negative territory today.

Having rallied early this morning to a high of $1.3785, the European single currency is now down to $1.362. Zerohedge’s verdict is clear: “The market now believes the Irish bailout has failed,” it said.

Looking around the market, the FTSE 100 is now down by 45 points at 5688. RBS and Lloyds are the biggest fallers, reflecting their exposure to the Ireland banking sector

Government debt is also being hit, particularly that of Portugal. The cost of insuring Portugese debt has now risen – with five-year credit default swap contracts 40 basis points wider at 452bp (see 10.33am for more detail).

Listening to traders, the new political uncertainty in Ireland appears to have alarmed some in the City. Reuters are quoting an unnamed independent government MP who has said he is unlikely to support next month’s budget.

The ruling coalition only has a majority of three at present. If it loses the budget vote, the whole IMF/EU rescue package could unravel.

1.25pm: A reminder that George Osborne will be making a statement to the House of Commons this afternoon about the Irish rescue package, probably around 4.20pm.

We already knew that Tory eurosceptics will give Osborne a hard time over the deal. But one Labour MP, John Mann, has now said he will oppose the rescue plan if it comes to a vote:

What George Osborne has chosen to do is use money from the average taxpayer to bail out the bankers – including British bankers – yet again. What is extraordinary is the way Osborne has dealt with this bail-out. Ireland has been allowed to keep its rock-bottom corporation tax rate, but again at the expense of the British taxpayer, with firms like Northern Foods relocating to Dublin just last week.

(that’s via Andrew Sparrow on the Guardian Politics live blog ).

1.23pm: Ireland appears to be moving rapidly onto an election footing, following the call for an early general election (see 11.57am ).

The political team at state broadcaster RTE are describing the move as “seismic”. With a January election seemingly inevitable, the campaign has effectively already begun.

Worth remembering, though, that we don’t know the terms of the IMF/EU package. Or, crucially, the details of the four-year fiscal consolidation which will be announced on Wednesday.

12.47pm: The Irish political crisis is escalating. We are hearing that certain backbenchers in the Fianna Fail party are planning to force prime minister Brian Cowen to quit within weeks – once the €90bn rescue deal has been finalised and next month’s budget has been pushed through.

Henry McDonald , our Ireland correspondent, reports that Cowen’s political fate may be sealed . Elements of Fianna Fail are determined to make the Taoiseach carry the blame for the humiliation of the IMF bailout, and the mistakes that led to the crisis.

This just in from Henry:

Pressure is mounting on Brian Cowen to step down as Ireland’s prime minister, sources inside the ruling Fiann Fail party have told The Guardian.

They said backbenchers want Cowen out as Taoiseach shortly after the country’s cost-cutting budget on 7 December.

“We cannot go into a general election with Brian as leader after the events of last week. His credibility is shattered,” one senior Fianna Fail source said today.

The Green Party’s decision to demand a general election in early January appears to make Cowen’s position even more precarious.

Looking at the financial markets, this bout of political infighting has hit sentiment. The FTSE 100 is now down 29 points at 5703 (-0.51%). The two banks with the biggest exposure to Ireland, RBS and Lloyds, are the biggest fallers. RBS is down 3.5% at 40.2p, while Lloyds are off 2.67% at 64p.

11.57am: The Irish government appears to be moving towards break-up. In the last few minutes Ireland’s Green Party , the junior partner in Brian Cowen’s coalition government, announced that it has asked the Taoiseach to call a general election in the second half of January.

In a remarkably hard-hitting statement that leaves Cowen’s government reeling on the ropes, the Green Party said that the current administration should be dissolved – once the IMF/EU rescue deal is concluded.

My colleague Lisa O’Carroll points out that, given Cowen’s wafer-thin majority in the Irish parliament, a general election now appears inevitable – as the Greens can simply walk away from the government if their demand for a vote in the new year is not met.

Here’s the full text of the Green Party statement, from leader John Gormley:

The past week has been a traumatic one for the Irish electorate. People feel misled and betrayed.

The Green Party believes three things must be done in the coming two months to safeguard the future prosperity and independence of the Irish people.

These are: – Producing a credible four-year plan to show we can make our Budgets balance by 2014. – Delivering a Budget for 2011. – Securing funding support from the EU and IMF which will respect vital Irish interests and restore stability to the Euro area.

We have always said that our involvement in government would only continue as long as it was for the benefit of the Irish people. Leaving the country without a government while these matters are unresolved would be very damaging and would breach our duty of care.

But we have now reached a point where the Irish people need political certainty to take them beyond the coming two months. So, we believe it is time to fix a date for a general election in the second half of January 2011.

We made our decision last Saturday after a long series of meetings.

Since entering government in June 2007, we in the Green Party have worked to fix and reform the economy. It has been difficult. We have taken tough decisions and put the national interest first.

We cannot go back and reverse the property bubble and the reckless banking which we consistently opposed. Nor can we control the market turmoil which has afflicted the Euro area.

We have taken extensive measures to recognise the losses and stabilise our banking system. However, it is now clear we need further measures to give the market confidence about our banks and public finances.

We are now discussing ways of restoring stability to the banking system with the support of our European colleagues and the IMF. We have to ensure that the terms of any such support are in the interests of the Irish people and the wider Euro area. The timeframe for achieving a four-year plan, Budget 2011 and a good outcome from IMF/EU talks is very short. These matters must at this stage take priority ahead of everything else.

Despite our difficulties and disappointments, I believe we can get out of this situation. We must all work together to ensure the best outcome for everyone.

11.45am: Several European countries have welcomed Ireland’s decision to seek financial help, with Spain predicting that it will help to save the euro.

Spanish foreign minister Trinidad Jimenez said it was “good news”, and insisted that Spain was also addressing its own financial problems:

The euro will stabilise thanks to the help of all European Union nations

Sweden , which like Britain is not part of the eurozone, is also planning its own bilateral loan to Ireland. Finance minister Anders Borg explained this morning that Sweden is concerned that the debt crisis will spread across the European economy unless it is contained now.

Borg said the loan would probably be between 5 and 10 billion crowns (£456m-£912m).

11.23am: Looking beyond Ireland, Portugal is about to be hit by a general strike – possibly the biggest in the country’s history – in protest at its austerity cutbacks.

Portugal’s two biggest trade unions have called a mass walkout for Wednesday, in protest at government measures aimed at reducing the country’s deficit. Many smaller unions have backed the strike, and it seems likely that hundreds of thousands of workers will take to the streets.

João Proença, head of the UGT trade union, said the general strike was a “fair and fundamental” attempt to change government policy:

Government policies will have a negative impact on employment. We need policies that give preference to increasing employment.

Portugal has long been bundled with Greece, Ireland and Spain as the weakest members of the eurozone. Last month it announced a wide-ranging €5bn austerity package that includes public sector wage cuts, and an increase in value added tax.

Here’s video footage of George Osborne explaining why Britain is taking part in the Irish rescue package.

(via the BBC)

10.33am: The cost of insuring Ireland’s sovereign debt against default has fallen this morning, as investors welcomed the bailout plan. But there is only limited relief, and concern that Portugal will be the next country to feel the heat.

The cost of insuring Irish debt against default for the next five years fell by around 7% this morning. The five-year credit default swap dropped 35 basis points to 470bp – which means it costs €470,000 to insure €10m of debt until 2015.

That is a more muted reaction than we saw this summer when Greece’s bailout was agreed (which partly reflects the fact that Greek debt was seen as much riskier).

The initial market optimism that we saw early this morning is also dying off. Shares in Allied Irish Banks (which will soon be 90% owned by the Irish taxpayer) jumped by 8% when trading began, but are now down by 4%.

This follows a prediction from the chairman of Anglo Irish bank that more nationalisations are likely across the banking sector. Alan Dukes called for “decisive action” to produce “two viable banks” in Ireland.

Looking at Portugal , its five-year CDS contracts have actually risen this morning, to 440 basis points. If they keep rising, the IMF team in Dublin might just find themselves flying straight to Lisbon….

10.10am: George Osborne probably regrets telling readers of The Times four years ago that Britain should take lessons from Ireland’s “economic miracle”.

Particularly galling for the Chancellor – the article from 2006 can still be read online today , having somehow escaped confinement behind The Times’ paywall.

Now, the team at Political Scrapbook have immortalised Osborne’s views in this video, so there’s no danger of forgetting there was a time when Ireland stood “as a shining example of the art of the possible in long-term economic policymaking”.

9.58am: Ireland’s opposition finance minister has claimed that a split is developing between the IMF and the European Central Bank over the terms of Ireland’s rescue package.

Michael Noonan of Fine Gael said that the two sides disagree about how much pain should be inflicted on the investors who have lent money to Ireland’s banks.

The IMF would be following the type of American model where those that lend recklessly should be punished as well as those who borrow recklessly. And that would mean, as the banking system is worked out, there would be discounts taken from the bondholders.

The European position has been over the years that no European bank would be allowed to default and that has been the principle of the European Central Bank… But obviously we know from statements by Angela Merkel and others that that… it is changing for the future.

Noonan was also unimpressed by the news that Ireland’s 12.5% corporation tax rate has been saved – claiming that it was never at risk.

9.45am: You can listen to Brian Lenihan’s full interview here (via Lisa O’Carroll).

9.21am: Brian Lenihan, the Irish finance minister, also hit the airwaves this morning to defend the decision to seek an IMF/EU rescue package. He told state broadcaster LTE that Ireland was “not bust”, and that there was no guarantee that the country would have to draw on any loan in full.

Lisa O’Carroll has more from Dublin:

Lenihan said the IMF were happy with the four-year plan to be unveiled on Wednesday, setting fiscal goals until 2014.

“They are broadly satisfied with it. Nobody’s going to sign off a plan in the second, third or fourth year in every last detail but they were impressed by the plan.”

He also hinted that the so-called Croke Park Agreement struck with the unions which guarantees no drop in pay in the public sector would be scrapped after a year.

The deal heralds a new wave of restructuring in Irish banks and the potential for a new ‘good bank’ . There is speculation that loss-making tracker mortgages may be taken out of Permanent TSB and other banks in a bid to make them work again.

“Banks will be downsized to meet the real needs of the Irish economy, and primarily that. That has to be the primary focus of our banks. Other surplus activities will have to be discarded,” said Lenihan.

8.40am: The prospect of Britain pumping an estimated £7bn into the Irish rescue package has already been attacked this morning, by a right-wing thinktank and a eurosceptic Conservative MP.

Sam Bowman , head of research at the Adam Smith Institute , has argued that the rescue package is “a bad deal for the UK”. Having declined to join the single currency, Britain should not now weaken its own economy by riding to its rescue, he argued.

[The rescue plan] 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 £7bn shows just how audacious the European Union has become in its desperation to keep the eurozone project afloat.

Douglas Carswell , the Conservative MP for Clacton, has also criticised the plan. Carswell, a leading light among the group of eurosceptics on the government bankbenches, believes it is simply wrong for Britain to be supporting the eurozone.

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.

These voices are not going to go away, either. The prime minister intimated last week that there would be an “early” debate in the House of Commons if Britain did take part in any rescue package.

George Osborne is also expected to give a statement to parliament about the situation this afternoon.

8.33am: The attraction of a separate loan to Ireland is that it keeps Britain out of a eurozone rescue deal, Osborne explained.

The chancellor told the Today Programme that “we don’t want to be part of a permanent bailout mechanism for the euro”.

He addead that “‘I told you so’ is not much of an economic policy”, adding: “It’s in everyone’s interest that we make the euro work.”

8.15am: Chancellor George Osborne is speaking about the bailout right now, and just confirmed that Britain is considering giving Ireland a bilateral loan, as well as contributing to the IMF rescue package.

Ireland is a friend in need, and we are here to help.

Osborne also indicated that Britain’s commitment will be measured in “billions, not tens of billions”, adding that the total bill will be around £7bn.

As we reported last week , any bilateral loan will directly push up Britain’s own deficit for this year. As David Cameron put it, it’s money that you “have to go out and raise in order to lend it”.

8.07am: Ireland’s decision to seek a bailout has been welcomed by the financial markets. The euro gained nearly half a penny against the pound in early trading, hitting 85.9p.

The London stock market has just opened, and the FTSE 100 index has quickly gained 47 points to 5780. Other European markets are also showing gains, as the prospect of the collapse of the eurozone recedes.

The picture is a bit less rosy in the bond markets, though, where the interest rate demanded by traders to hold Ireland’s government debt has only fallen slightly. The 10-year Irish bond is trading with a yield of 8.2%, down slightly from 8.4% on Friday afternoon.

David Buik, city commentator at BGC Partners, says investors are still wary of holding Irish debt as “we have no official meat on the bone”.

I expected a greater rally, but without knowing the terms of the bailout, perhaps expectations were too high!

8.02am: Dick Roche , Ireland’s Europe minister, has been talking this morning about the decision to seek a bailout.

Roche denied that the Irish government misled its citizens through most of November when it repeatedly insisted that it did not need help:

At the meeting of European finance ministers just a week ago, all the actions taken by the Irish government were endorsed.

Roche told the Today Programme that there had been an “extraordinary series of events” in the last few weeks, prompted by Angela Merkel . This is a reference to the German chancellor’s warning that a eurozone member that hits the financial rocks would face “orderly” bankruptcy . Although Merkel was discussing a future after 2013, Roche clearly sees her as the catalyst that pushed Ireland to the brink, as bondholders rushed to ditch Irish debt.

Roche also reiterated that while the Irish state was well-financed until the middle of 2011, “the banking position was so severe” that the country needs help now.

7.50am: Ireland bowed to the inevitable last night, and asked the IMF and the EU for a rescue package . The deal is meant to shore up its banking system, and prevent the collapse of the euro.

Details of the plan will be hammered out over the next few days. Many questions remain – including the precise size of the bailout, Britain’s own involvement, and the political ramifications of the move.

How will financial markets react? Will Taoiseach Brian Cowen be blamed for the “capitulation”? And is Portugal, the next weakest member of the Eurozone, about to come under more pressure?

All may become a little clearer in the next few hours, as we bring you the latest developments and reaction.

8.40am: The prospect of Britain pumping an estimated £7bn into the Irish rescue package has already been attacked this morning, by a right-wing thinktank and a eurosceptic Conservative MP.

Sam Bowman , head of research at the Adam Smith Institute , has argued that the rescue package is “a bad deal for the UK”. Having declined to join the single currency, Britain should not now weaken its own economy by riding to its rescue, he argued.

[The rescue plan] 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 £7bn shows just how audacious the European Union has become in its desperation to keep the eurozone project afloat.

Douglas Carswell , the Conservative MP for Clacton, has also criticised the plan. Carswell, a leading light among the group of eurosceptics on the government bankbenches, believes it is simply wrong for Britain to be supporting the eurozone.

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.

These voices are not going to go away, either. The prime minister intimated last week that there would be an “early” debate in the House of Commons if Britain did take part in any rescue package.

George Osborne is also expected to give a statement to parliament about the situation this afternoon.

8.33am: The attraction of a separate loan to Ireland is that it keeps Britain out of a eurozone rescue deal, Osborne explained.

The chancellor told the Today Programme that “we don’t want to be part of a permanent bailout mechanism for the euro”.

He addead that “‘I told you so’ is not much of an economic policy”, adding: “It’s in everyone’s interest that we make the euro work.”

8.15am: Chancellor George Osborne is speaking about the bailout right now, and just confirmed that Britain is considering giving Ireland a bilateral loan, as well as contributing to the IMF rescue package.

Ireland is a friend in need, and we are here to help.

Osborne also indicated that Britain’s commitment will be measured in “billions, not tens of billions”, adding that the total bill will be around £7bn.

As we reported last week , any bilateral loan will directly push up Britain’s own deficit for this year. As David Cameron put it, it’s money that you “have to go out and raise in order to lend it”.

8.07am: Ireland’s decision to seek a bailout has been welcomed by the financial markets. The euro gained nearly half a penny against the pound in early trading, hitting 85.9p.

The London stock market has just opened, and the FTSE 100 index has quickly gained 47 points to 5780. Other European markets are also showing gains, as the prospect of the collapse of the eurozone recedes.

The picture is a bit less rosy in the bond markets, though, where the interest rate demanded by traders to hold Ireland’s government debt has only fallen slightly. The 10-year Irish bond is trading with a yield of 8.2%, down slightly from 8.4% on Friday afternoon.

David Buik, city commentator at BGC Partners, says investors are still wary of holding Irish debt as “we have no official meat on the bone”.

I expected a greater rally, but without knowing the terms of the bailout, perhaps expectations were too high!

8.02am: Dick Roche , Ireland’s Europe minister, has been talking this morning about the decision to seek a bailout.

Roche denied that the Irish government misled its citizens through most of November when it repeatedly insisted that it did not need help:

At the meeting of European finance ministers just a week ago, all the actions taken by the Irish government were endorsed.

Roche told the Today Programme that there had been an “extraordinary series of events” in the last few weeks, prompted by Angela Merkel . This is a reference to the German chancellor’s warning that a eurozone member that hits the financial rocks would face “orderly” bankruptcy . Although Merkel was discussing a future after 2013, Roche clearly sees her as the catalyst that pushed Ireland to the brink, as bondholders rushed to ditch Irish debt.

Roche also reiterated that while the Irish state was well-financed until the middle of 2011, “the banking position was so severe” that the country needs help now.

7.50am: Ireland bowed to the inevitable last night, and asked the IMF and the EU for a rescue package . The deal is meant to shore up its banking system, and prevent the collapse of the euro.

Details of the plan will be hammered out over the next few days. Many questions remain – including the precise size of the bailout, Britain’s own involvement, and the political ramifications of the move.

How will financial markets react? Will Taoiseach Brian Cowen be blamed for the “capitulation”? And is Portugal, the next weakest member of the Eurozone, about to come under more pressure?

All may become a little clearer in the next few hours, as we bring you the latest developments and reaction. Ireland bailout European debt crisis European Central Bank IMF Ireland Portugal Graeme Wearden Haroon Siddique guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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For the five years that British forces camped on the Basra air base, the nearby city that they came to liberate remained a lethal tinderbox. Militias ran rampant; residents cowered. Services were medieval.

But a drive through Basra in mid-2010 reveals an entirely different picture. The despairing sprawl British forces left behind 16 months ago is now heaving with new money. Wide boulevards, once scarred with bomb craters and decades of putrid refuse are now full of new cars and touts hawking trinkets.

Three weeks ago something happened that few in Basra thought they would ever see – the reopening of the city’s most recognisable landmark, the giant hotel dubbed the Sheraton, that has stood in ruin since April 2003.

The 250-room hotel – five-star by European standards – has been rebuilt, renamed the Basra International hotel, and redesigned by local architect Waad al-Radhi, who left the city two decades ago.

“This is very complicated and very costly,” said Radhi, standing in the foyer of the hotel as work neared completion. “But we decided to make the best for this city.”

Asked why he had come back at a time when central Iraq remains lethal and when a government has been unable to emerge from the country’s third tilt at a democratic election, seven months ago, Radhi said: “When I have an opportunity to work here, the same standards, the same salary and priviliges which I can take abroad, why not work here. All our Iraqi experience will be back home when you can guarantee them life standards.”

Outside the window, motorboats and fishing skips churn through the brown silt of the river. A freighter turned turtle off the city’s main dock and bullet-strewn buildings on the foreshore are reminders that this was recently a city at war. But the hordes of garish shopfronts, rampant neon lights and streets teeming with shoppers and revellers also reveal a city that is embracing change. Another new four-star hotel across town is constantly full – mostly with foreign businessmen – and new car dealerships line most main roads.

Nationwide security reports released daily since January constantly demonstrate that southern Iraq has evolved from a war zone to a benign place where weeks often go by without a single shooting, or bombing.

Violence has not stopped completely and more than 50 people were killed during a day of bombings in early August. But the contrast to the rest of Iraq is marked.

“We are flourishing this year,” said mobile phone salesman Irfa Abbas Khudier, in front of a row of fake iPhones inside his downtown Basra stall. “Incomes are up, the people are feeling better, the jobless are finding work and many foreign investments have started.”

This cruel and desolate city seems to have found a softer edge, where the trappings of the west and even foreigners who come to revel in the spoils are suddenly welcome. Against many expectations, Basra is steadily being transformed into a Mini-Me of the Kurdish city in northern Iraq, Sulaymaniya. There is one common denominator between them – oil and the flush of wealth it has brought.

The first round of oil auctions in Iraq last year cast Basra as potentially the largest beneficiary of the move to lure foreign investors to untap Iraq’s vast amounts of underground black gold. But it was a projection that those who had lived through nothing but worst-case scenarios found difficult to believe.

“Visitors come here and say they don’t recognise Basra anymore,” said Firas Mohammed, who opened a cosmetics centre late last year. “I left for two years from 2006 and I returned to open my business. It is already going very well and will be much better very soon. This was the city of nightmares. Now shops are open until midnight and families are playing in new fun parks.”

Throughout the centre of the city, several hundred shops have opened in recent months, selling anything from Turkish shawls, Gulf fragrances and Lebanese sweets. Fun park rides compete for space along riverside parklands that were deserted for most of the past five years. Even the riverboat restaurants are plying a trade of sorts, serving fried food on rusting decks that had been empty since 2004.

The deep south had been persecuted throughout Saddam Hussein’s totalitarian regime, during which he viewed the predominantly Shia Muslim population as proxies of his mortal foe, Iran.

Oil pipes, roads, and other services had not been updated since the 1960s. Many Basra suburbs did not have sewage lines. Most had next to no electricity, or hope that things could ever get better.

This hardly dissuaded the global oil giants who flooded into town once the first round of contracts were awarded last August. In their wake came hundreds of smaller outfits on the hunt for service contracts, as well as prospectors and carpet baggers. BP and the Chinese oil giant CNPC are setting up camps at the huge North Rumaila oilfield north of town and Exxon Mobil are digging in in the nearby Majnoun field.

Wedged into the ground 40-70 metres below their feet is around 40% of Iraq’s oil, a resource that could eventually transform the economy into one of the world’s leading economic powerhouses. “This is potentially the fourth biggest oilfield in the world,” said Gary Jones, BP’s director of operations in North Rumaila. “The intention is not just to create a spike but to build production to nearly triple capacity.”

Immense amounts of infrastructure, drills, turbines and rigs, are being brought on to Rumaila and Jones says the consortium is on track to increase the production of barrels per day by 10%, from 1.045m to roughly 1.2m by the end of the year. The nationwide barrel per day optimum is 2.5m, but Iraq’s collective oil output has so far reached only 80% of that.

Jones says that any excess electricity generated by North Rumaila could be sent down the line to Basra city, which is reeling under the effects of a catastrophic under-supply of national grid power that has seen most homes in the centre and south of the country reduced to around four hours of government supplied electricity per day – most of it too weak to run air conditioners to ward off staggering summer heat. Yet from his Baghdad office, oil minister Hussein Shahristani is presiding over one of Iraq’s few success stories and he likes what he sees. “I have always had a soft spot for the Shias of the south,” said Shahristani, himself a Shia Muslim. “What is happening down there is truly remarkable.

“We know that we cannot start a proper rebuilding programme without the oil sector,” he said. “That’s why we were so committed to making sure we attracted the oil companies and we are very pleased with the results.

Elsewhere in Iraq, however, the Shia revival is being seen as part of a Persian-led conspiracy that will enrich the Shia south at the expense of the already disenfranchised Sunni centre of Iraq. Development in the rest of Arab Iraq remains paralysed by a political stalemate, which has stirred the ghosts of the sectarianism that tore the country apart not long ago. In Basra, there is little mood to spread the wealth around. “We have had it very tough here for so long and it is now our time to prosper,” said the chairman of the Basra provincial council, Jabbar Jaber al-Latif. “I can now say that we are into the first step to change Iraq and especially the south. To turn infrastructure around we will need a long time and a lot of money – but this is a start.”

There is still though a fear that the dark days could easily return and that anarchy will never be far away. Iranian influence remains strong, the rule of law feeble and, despite the calm, a belief prevails that the militias that have downed tools are going with the flow for now – not changing their ways for good. Iraq Middle East Oil BP Oil and gas companies Energy industry Martin Chulov guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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