Irish Minister for Finance, Michael Noonan signalled yesterday in the Dail that the attempted renegotiation ofIreland’s IMF/EU bailout deal had effectively come to an end, withFrancevetoing any easing of the interest rate charged without a specified quid pro quo : an increase in Ireland’s corporation tax rate. Minister Noonan, with what seemed like a flash of anger as much as resolve, made it clear that the existing corporation tax arrangements were vital to Ireland’s future, not least our ability to repay debt. And he was not going to bargain that away for a reduction in interest rates which might only be worth €148-200m per annum.
Of course, France’s stance is a little curious. Not only does France have an effective tax rate of 8.2% (compared to Ireland’s effective rate of 11.9% – the headline rates are higher of course, 33.1% in France, 12.5% in Ireland); but France is also insisting that Greece reduce its corporation tax rate by 1% per annum between now and 2014. That’s reportedly part of the new austerity and privatisation package that will be unveiled before the Greek parliament and nation later this week. Okay, Greece’s current rate is 23% and the new measures will bring rates down to 20% over four years, but curious that in the south of Europe, France supports a cut in corporation tax rates but on the western periphery wants to see an increase. Curious. The view on here is that like that line from the Godfather “but I didn’t know until this day that it was Barzini all along”, we will eventually find that it is Germany that has the most influence in the attack on our corporation tax arrangements. But regardless, for now at least France is being a little schizophrenic.
So sadly then, the renegotiation of the bailout terms has effectively ended. No burning of senior bondholders (despite support from the IMF), no extension of the time to repay debt (which would not have financially cost our creditors anything) and now no reduction in the penal interest rates on our bailout which will see the EU profit to the tune of about €7bn from our misery – by profit, I mean that the EU sources our bailout funds for 2.8% and charges us 5.8-6%+. In the words of British MEP, Sharon Bowles it is “outrageous”. But we are not children and we agreed to the bailout deal, and it was approved in parliament. So although it might be unfair and might be an affront to the concept of European solidarity, perhaps we need man up and accept the terms.
Of course, solidarity is a two-way street. And in a few weeks time, it seems that a new EU bailout will be needed for Greece, Greece that received a 1% reduction in its bailout interest rate in March 2011 despite failing to follow the bailout agreement negotiated in May 2010, Greece that steadfastly refuses to reform its economy and tackle its primary deficit in the way agreed with the IMF and EU, Greece that apparently lied about its financial condition, Greece that received almost €400m from Ireland last year.
So what will Minister Noonan do when his approval is sought for a second bailout later this month? Will Minister Noonan use his veto to demonstrate the outrage felt in Irelandat the lack of solidarity in Europe, at the hypocritical stance of France, at a Europe that is hugely profiting from Ireland’s misery, at a Europe that seems relaxed at Greece failing to reform its economy and even rewarding it with a lower interest rate? Solidarity is indeed a two-way street. And unlike former US president Bush, our own Minister for Finance is a highly articulate man and can explain in clear terms to our partners in Europe that certain countries should be ashamed of their stance which undermines solidarity and thatIreland will not be fooled into yet more measures without a quid pro quo. And by the way, when was it accepted that a 1% reduction in interest rates was the ultimate goal, surely the goal should be to get the funds at cost, that is, to secure a 3% reduction. And that the reduction would apply to all funds including those already received. Indeed since the funds are being used to repay private bondholders throughout Europe, there is a case for arguing the bailout should be below cost.
NAMA Wine Lake 
Note:
Finfacts takes a look at Corporation Tax rates in Europe. I don’t know enough about it myself to comment, but it appears that the French rate is generally far higher than the Irish rate. The “8.1%” rate would applied simply on the basis of a 100% owned domestic new SME company that is a ceramic flowerpot manufacturer with no exports or imports.
A paper published in the American Economic Journal in July 2010, puts the Irish effective tax rate for the SME standard firm at 9.62% and France at 14.06%:
and
Last month, economists at the American Enterprise Institute put the French effective rate at 27.5% and the Irish rate at 10.9% – – these are the figures that are relevant in respect of multinational investment rather than a typical SME
http://www.finfacts.ie/irishfinancenews/Irish_Economy/article_1021869_printer.shtml
Would be very interested to see NWL’s reply to this. The word ‘effective’ seems to be a movable feast (to my ignorant eyes at least).
+1
VETO!
“Fool me once….. y’aint gonna fool me again!” (I couldn’t resist)
The odds of the Minister or any Irish delegation growing a spine and standing up to the ECB are exactly 0%. The banking putsch at the ECB will trundle on regardless, the Greek (and ultimately Irish) corporation tax rate constituting a political rent payment from itself to the politicians in the central states. If the ECB brings Greece to heel, they’ll have earned their keep for the next decade.
Those are the stakes; so expect the Irish delegates to capitulate in short order.
See the gap in the rocks in this picture here?
Irish politics reminds me of the boat, only, fortunately there is a sound and well versed captain behind the wheel. In case of Irelands decision history since 2008, the course of the little red boat that I shot on Gola Island last year would be like this:
…See the gap? SEE IT? ….There is no other way!….Full speed ahead!…
I think you could add ‘Irish banks not getting a medium term funding facility from the ECB’ to the list of things we didn’t get. I got the impression that the IMF had expected this was part of the latest recapitalisation package.
Irish officials need to understand that supplication is not the only policy.
So, eventually Noonan was told the truth that, “The facts, although interesting, are irrelevant.”
Someone should also convey to the Irish that there is a fine line between fishing and standing on the shore like an idiot. We never even had a fishing rod. Everyone could see that but ourselves. Even Timothy Geithner (ex MD of Goldman Sachs and now US Treasury Secretary) knew it.
So much for our much vaunted our European “friends”…… they may come and go, but our enemies accumulate. The priority is their banks – not us.
NamaWineLake.
I have to disagree with you on this. Our support for any positive measures for Greece should be unequivocal.
We should not use the Greek’s misfortune to display our own outrage by demanding a quid pro quo for ourselves. It would confirm that the selfishness that has managed to destroy the country is still alive and well.
It would have the same ethical basis as a husband kicking the dog in frustration, after having been severly chastised up by his wife.
We should have and still should summon up the courage to stand up for ourselves on our own principles. And on the principle of fair play for everybody.
As a high creditor country we should be on the side of not just burning debtors but of roasting them, particularly ones that had no moral of legal right to call on the irish State or Irish citizens to bail them out.
This whole interest thing is just theatrics.
The deal is already done – “If you pay back our bondholders, we’ll lend you the money to pay them back and throw in some extra to fund the cronyism and quangos for a few more years.”
I do not agree, Ireland needs friends and we certainly do not need to gang up on Greece.
The citizens of Greece are just as much victims of a corrupt political system as we are ourselves .We should in fact have come together with the rest of the PIGS and created group of our own .There is strength in numbers. And maybe with real patriots we would have been better able to exploit the real concerns of the German and French would be European masters namely the euro currency and its stability
First of all we the people did not agree to any bailout, we the people weren’t asked, we the people did not have any choice our corrupt incompetent at best politicians agreed this utter con job.
I still maintain these debts are from private companies and their shareholders and the gamblers that supported them .These debts are not the problem of the Irish people .under international law these debts are classified as odious debts and we as a people are not obliged to pay them back. It’s a bit rich of the French and German politicians to make demands on us. We are in fact bailing them out their corrupt banks .if you haven’t do so already please read the earlier posting by By MICHAEL HUDSON entitled “How Financial Oligarchy Replaces Democracy” for a better insight on what is really happening here .If there was ever a reason for a revolution in this country it is now plain we cannot thrust our own gutless politicians and certainly not anybody from Europe .Our country has been betrayed and the new government has collaborated with the crooks in the EU and IMF .They are a disgrace and should be hounded from office by all possible means.
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I don’t understand everything that is written on your blog, but you certainly have a way of cutting straight to the meat of the problem. I cannot see how the lassiez faire attitude adopted by our government will give us the best deal on our bailout. I suppose we should expect as much, how can we expect to elect a school teacher from the arse-end of Ireland and expect him to go into battle against some of the most cunning minds in Europe? We must as well send Dustin the bleedin’ Turkey out to Brussels.
By the way, does NamaWineLake have a professional economics background? If not, I applaud him for “getting” the issues better than most of the mandarins who purport to be in the profession and who hold “qualifications”.
@anon, you’re a new commenter and I am just about letting your comment pass, because I hear similar sentiments at the moment. This is a non-political blog, and you’ll realise that the following might as well apply to FF and SF. Enda Kenny hails from Mayo but has spent much of the last 36 years working between Mayo and Dublin. And in more recent times, he has spent a lot of time in every nook and cranny of this country. I know where the “arse-end” of Dublin is – there are a few of them in fact and they’re slowly being regenerated. I know where the “arse-end” of Limerick is – again there are a few of them and again there is some regeneration though it’s slower. Cork and Galway seem to me to be less afflicted. But I can honestly say I wouldn’t know where to look for the “arse-end” of Mayo or indeed Offaly. These are rural counties, you know, fields, livestock, trees, lakes, villages and small towns – the countryside. It seems to me that Enda would have the perfect balance of an Irish rural and urban life.
And he’s a school teacher. I’ve heard some that say we should have an economist as taoiseach, and school teachers and barristers are not appropriate for our present times.. Or presumably if we didn’t have the financial crisis and were focussing on energy, an engineer or physicist would be the qialification for taoiseach. Or if we were focussing on food and agriculture, a farmer, nutritionist or “food scientist”. Which great leader of the world at present is an economist? The taoiseach needs to seek the advice of experts, be they economists, physicists, farmers. He then needs resolve that technical advice and relate it to his own values for this country. He needs to choose his advisers well, display curiosity and make wise decisions. It might help if he were an economist in present times, but even if he was a Nobel prize winner, he would still need seek out specialist advice in the very many disciplines that makes up economics. Enda Kenny has been a professional politician for 36 years or longer. And being a school teacher with it is, if anything a bonus.
Remember Enda has delivered what seems like one of the strongest governments in decades. He is 92 days in office today, though frankly policy should have been a work in progress when they came into power – it wasn’t unexpected after all. This coalition has gotten off to a slow start. They’ve reversed the minimum wage cut which will cost nearly €500m in the next 4 years in reduced PRSI contributions. They’ve reversed the decision to transfer AIB/BoI loans to NAMA, then they said that would depend on credible deleveraging plans being produced by AIB and BoI last week, and what good is it keeping lousy sub-€20m loans at AIB and BoI anyway? The losss will need be crystallised at some point, and these problematic small value land and development loans will need be worked-out by someone. They’ve introduced a modest jobs initiative and funded it by imposing what looks like a legally dangerous levy. They’re creating a few new quangos, the hospital waiting times committee being the latest. They’ve made some (unadvertised) appointments to quangos, eg directorships of the Irish Petroleum Corporation Limited.
And the banks. It was FF or rather the IMF/EU that initiated the stress tests in January 2011. Minister Noonan got the results in March 2011, and there is no great evidence of him changing recommendations from Barclays Capital in particular. And now it seems we are to have two state-controlled “pillar” banks with AIB costing us an additional €13.3bn – what’s the point in spending so much money just to have two state-controlled banks? . And Minister Noonan gave his approval to an interest rate reduction to Greece and approved a bailout package for Portugal and where was the quid pro quo for our interest rate? And on the bailout, Enda Kenny, Leo Varadkar, Michael Noonan and Brian Hayes contradict each other, with Leo Varadkar sounding the most competent. Sympathise with them for the need to display confidence, but for crying out loud pay heed to the markets as well.
There is the saying that some people are born great, some become great and some have greatness thrusted upon them. To date, Enda Kenny has not been very impressive by reference to results. But it is early days, and we can but hope. Meantime it is the job of the media, mainstream and not, to report, analyse, highlight contradiction and editorialise, no matter how unhelpful or inconvenient that might be.
As for your other questions and sf ca writer’s comments, this blog is anonymously authored.
@nwl
Great reply on the location of the several “arse-ends” of Ireland.
If the latest Greek unemployment numbers consequent to austerity a la the ECB are anything to go by, we won’t be able to go outside of any front door in the country before being hit by an “arse-end”.
great question re economics background…….my 2 cents…. as I see it you have a professional eonomics background if you have a cent to your name, you owe a cent, or if you find one.
well nwl?…. not sure he”ll tell us
but of course there is rigorous learning of skills and ideas in all academia and economists, well…. can’t live with ’em can’t trade ’em for beer.
A lot of them have harp minds and help us all in many ways.
( typo above ) – have sharp..not ‘harp’.
compliment to economists intended
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Stephen Harper the Canadian prime Minister is an economist and his Finance Minister Jim Flaherty is an Accountant.. The previous PM of Canada was a businessman Paul Martin who left the country in excellent shape in terms of national debt and budget surpluses. Economists are only as good as their models and those models are proving to be ineffective.
Ireland, even if the gene pool was not flawed does not have the population to consistently produce effective leaders. Add to that the inbred nature of Ireland’s politics and the voters tendency to re-elect wrongdoers and it is surprising we have not had more economic collapses.