Reporting on the EU summit, which started yesterday and concludes today, suggests that Taoiseach Enda Kenny has failed to secure for Ireland the interest rate reduction agreed for new bailouts in March 2011 and which has been bestowed on Greece already. Media reporting here suggests a degree of cordiality between Taoiseach Enda Kenny and French president Nicolas Sarkozy. The Irish Times yesterday showed a photograph of Enda laughing and pointing at Nicolas who was smiling and walking away and captioned the photograph with a claim they were sharing a joke. Take a look at the video here, it’s in the first minute where Enda and Nicolas are shown meeting and shaking hands, and it is from this video that the Irish Times photograph was apparently taken. It doesn’t look too genuinely friendly to me.
Now take a look at what is called the family photo and the video of how it was set up. President Sarkozy comes in at 3:00 and goes directly to shake hands with someone three people down from Enda, Enda looks away in the other direction and Sarkozy looks at Enda and looks back, and then Enda stares at Sarkozy. You can probably ascribe all sorts of the conclusions, and they might all be rubbish but looking at these videos, it is hard to find any evidence of a rapprochement betweenIreland andFrance and if you want to look for a narrative of continuing inter-personal hostility between Enda and Nicolas, you don’t have to look too far.
The bottom line now appears to be that France will not move on its position with respect to linking any reduction in bailout interest rates with changes to Ireland’s corporate tax arrangements (either the rate of 12.5% or the basis for calculating tax – “the base” – or both). It seems that France plays a dangerous game in that its use of the veto seems irresponsible in the context of EU solidarity, particularly towards a small nation facing economic hardship (unemployment of 14.1%, above average wage levels offset by high legacy debt particularly in property, the high cost of goods and services and increasing taxes, and reduced public services not to mention 100%+ debt:GDP much of which is being used to repay bondholders at Irish banks). All countries can be irresponsible with their use of the veto, and that is supposed to be a deterrent. As for Enda Kenny’s efforts, it does indeed seem that much effort was expended by government in communicating our message to our partners in Europe and in trying to persuade them to allow a retrospective reduction to Ireland’s bailout. And in most cases it worked. It didn’t in the case of France. How much of this failure can be laid at the feet of Enda Kenny personally? Who knows but it seems that Enda personally dealt our prospects a blow on 24th March and as far as we can now gather, there is little real effort on his part to seek a rapprochement now.
To place the above in context and as it is the end of the week, in the past seven days we have incurred €25m in interest on the €22.2bn of bailout funds that we had received up to the end of May 2011 (source: May 2011 Exchequer Statement – 5.8% * €22.2bn * 7/365). Of the €22.2bn, €15bn is from the EU and the remainder is from the IMF who don’t generally change their standard interest rates. If we were paying 4.8% on the EU element instead of 5.8%, we would have saved €2.8m in the past seven days. That’s the real cost of the Enda’s failure to secure an interest rate reduction. Though possibly an even greater scandal is the fact that most of the €22.2bn is languishing on deposit at one of our banks pending its use for recapitalizing the banks – the NTMA refuse to disclose whether the bank is paying us any interest on the deposit, or if it is what level of interest – so most of the €25m incurred in the last week was arguably wasted because our government(s) couldn’t plan the use of the bailout properly.
UPDATE: 24th June, 2011. In the Irish Independent, Fionnan Sheahan boldly claims that the stalemate with the French has been broken and suggests that the French have dropped demands on corporation tax. This looks like a load of rubbish reporting which even itself says “France is softening its stance on an increase in our corporation tax rate in return for a bailout cut and appears to be set to drop it completely.” – “softening” is not the same as categorically abandoning . It is suggested that France might substitute its demands in respect of our corporate tax arrangements with greater stringency in budget implementation, for example department spending limits would be strictly adhered to. Bottom line, three months after the disastrous encounter on 24th March, we are still paying a margin of 3% on the EU bailout because of one country’s, France’s veto.
UPDATE: 10th January, 2012. For the avoidance of doubt the caption to the photograph at the top is meant tongue-in-cheek, and our Taoiseach is not in fact lifting cufflinks. We are not Czechs after all.
NAMA Wine Lake 
Where’s Bono when you need him?
Make announcement to consider lowering corporate Tax rate to 6.5% in december budget…. sit back and wait on reactions.
@Georg, are you still beating your wife?
Gotcha! That’s a classic loaded question, and its purpose isn’t to elicit the response “no, of course I’m not!”, it’s to put in people’s minds that you might potentially have beaten your wife in the past or be capable of it in the present.
One fear is that any talk of ANY change to our corporate tax arrangements is a deterrent to investors who might be considering Ireland as a base for the next decade. So the French demands, even if they don’t have any prospect of success, are still damaging to the country in that they create uncertainty in the minds of investors.
And so it is also with any change, even if it’s a retaliatory reduction because investors might feel that the rate set in stone might change again in the future and not for the best.
Yup!
Happily unmarried. ;-) Applied destructive physical violence only once in my entire life, forced upon by means of protecting another persons life.
The lack of quality in the Irish response to this damage caused by continued french statements is disheartening. Pretending to print T-Shirts that state ‘Ireland is not Greece’ appears to be the maximum ability of Irish negotiation qualities.
Would love to ask Mr. Noonan a few questions:
– Have a guess how many planes are in the air at this very moment.
– What is your strategy in table tennis?
– Say we play russian roulette, and after – phew – I pulled the trigger and nothing happened, now it is your turn, do you rotate the drum with the bullets, or do leave it in the position I left it with?
– Five men of different nationalities and age come in a bar and sit at the counter. What are the chances that they sit down in the order of their age from left to right?
– Go ahead and sell me an invisible pencil.
Small nations dont negotiate change by consent with larger,more powerful nations if it does nt suit the greater power.
Small countries effect change when they have something to bargain with or when they pose significant threat to the larger country.
This is the dirty rationale behind terrorism. If the cost to the larger power is damaging enough a different equilibrium can be achieved satisfactory to both sides.
We have nothing with which to bargain with but we can still pose a threat .We can’t repay the debt anyway so why not lower Corporation tax by the differential in the interest rate we are being charged versus the interest rate the ECB could lend to us.
This puts the larger power on the defensive.If the ECB increase our interest rate on the bailout package this will be seen as retaliation and make it easier for us to take the next step by threatening default.
We should be trying to set up a confrontation such as the above.
@Sean, that’s novel but how do you fund the €1bn shortfall in corporation tax receipts if you reduce the CT rate from 12.5% to 9.5% (presently Ireland earns €4bn each year in CT being 12.5% of €32bn of corporate profits – 3% of €32bn is €1bn).
And in other news, Mr. Sarkozy obtains removal of the much-loved BiniSmaghi from the ECB Board. That’s some independent board then, isn’t it ? Enda probably has a hard enough job keeping a straight face with all the hypocrisy flopping around.
@Keith, there are rumours this morning of ECB board member Lorenzo Bini Smaghi (LBS) agreeing to step down, but I have yet to see confirmation. I see that Italian central bank governor Mario Draghi has been appointed new president of the ECB when incumbent Jean-Claude Trichet steps down in October 2011. You are right in saying that France and Nicolas Sarkozy have not hidden their animosity towards LBS. As for LBS much-loved, actually I personally think he makes a lot of sense on many issues even if he is provocative in how he expresses himself.
http://uk.reuters.com/article/2011/06/24/uk-eu-summit-draghi-idUKTRE75N1JO20110624
I don’t believe lowering the CT rate is a good idea. Because if it were done, it would have to be reversed back to its original rate within a year or two. This would cause undertainty among the mutinationals who are based here.
Thus lowering the rate would hurt Ireland more than it would hurt France, After all it would be Ireland which loses tax revenue, not France.
Furthermore I find it annoying that the people are subjected to 55% marginal rates, while corporations who make vast sums are subjected to 12.5%. I think there is a certain injustice in that. Of course there are reasons, just getting people employed and off the dole and etc etc.
But it is strange that the state followed one plan of making Ireland a attractive place for multinational companies to set up here, yet they have made Ireland a very expensive place for a worker to exist here. This in turn puts pressure on MNC to pay workers higher wages.
It appears that while one arm of the state is getting MNC’s in, the other arm is trying to make life as painful as it can for workers.
In the big scheme of things is the interest rate really that important? Will a 1% reduction save Ireland megga loads of money? I have seen figures of about 450m / year being saved on a 1% reduction. Obviously every little bit helps, but at this stage of our debt is it really that important?
I feel the best bet for Ireland is to keep a low profile, make peace with President Sarkozy, quietly raise the issue again in about 12 months time, when there will be no loss of face.
One important point, we should not ignore the lessons of history. France bullied Germany after the 1st world war. Germany went through a horrendous economic time, which then gave rise to Fascism.
The French have a propensity to extract more than a eye for an eye, going beyond a pound of flesh. They have a tendency to be very strubborn and of critical judgement.
Ireland should be careful about which card it plays and when.
@NMW.
If Ireland is likely to default anyway then a loss of 1 billion euros is a risk worth taking to force a confrontation.Our backs are against the wall.
I think we should try and exploit differences between the ECB and the IMF.
Sporthog makes some good points,perhaps a reduction in personal income taxes would be another way.
I know this would be irrational behaviour dealing with massive budget defecits under normal circumstances but these are extraordinary times.The interest rate premium we are being currently charged is also irrational and is punitive a la what sporthog highlights re France’s actions against Germany following WW1.
France re invaded the Ruhr valley and carried out shocking attacks on German civilians and gutted the industrial base of germany out of pure spite (an excellent read on that history is ‘When Money Dies’ by Adam Ferguson) leading to shortages and hyperinflation.
@Sean, and how would you pay nurses, teachers and Gardai in the next three years without the bailout funds? Which wouldn’t be forthcoming if we unilaterally reduced CT rates. Remember the expression “fiscally neutral” – that’s what any initiative must be (or positive). And we need creditor agreement before we change anything. That’s the sovereignty we lost last November 2010.
We should make it clear that corporation tax or income tax will be reduced until interest rate differential is closed.
I agree its high risk stuff.But its also a policy of mutually assured destruction. If the French or the ECB stopped the flow of funds then thats the end of the euro and they dont get repaid.
My understanding is that over 20 billion is in Irish bank a/c’s awaiting the payoff of Anglo bonds in October(please correct me if wrong or inaccurate here).
This money gives us at least four months breathing space.If the ECB cut us off,the govt. can declare a state of emergency and institute martial law.
All transfer payments (social welfare etc) to all EU nationals to cease immediately. The right to work of all EU nationals in Ireland (excepting the UK) to cease immediately as solidarity is broken by the EU cutting us loose.
The punt reinstated and all sovereign debts redenominated in punts.Devaluation will ensure massive writedown in loans also.
All bank debt and ECB debt to be 100% defaulted on.The EU has no army so payment cant be enforced.
All payments to Guards etc will be in new punts.
There will be negative unforseen consequences and terrible poverty for a few years.
But we will have the opportunity to plan and work our way of the mess with a fresh start.
Indeed it might not be as bad as the doomsayers say,after all AIB defaulted on some bonds thsi week and nobody blinked.
[…] […]
@Sean – ‘Small nations don’t negotiate change by consent with larger, more powerful nations if it doesn’t suit the greater power’ – sometimes you don’t need consent.
I’ve just finished the biog of Mickey ‘Rattler’ Byrne, one-third of the renowned Hell’s Kitchen Tipperary full-back line of the late 40s/early 50s. In an era when hurling was dog-eat-dog – legal frontal challenge, third-man-tackle, no ‘assistant referee’ running the line, no umpire able to draw the attention of the ref to any shenanigans -The Rattler (as he’s universally known), though only 5’7″ and 10.5 stone, more than held his own, and for his indomitable courage and disregard for his own personal safety in the cause of Tipperary, he won respect from friend and for alike.
There’s a quantum difference between being a small dog and being a sniveling cur – someone should explain that to our esteemed leaders.
That should be ‘friend and foe’!
@ NWL,
Just another perspective, if the % rate for the bail out is too low, then the inclination to change our budget deficit is reduced.
Hence reducing the rate could slow down our willingness to get our house in order.
After all, mismanagement of the country’s finances has to be seen as something which is to be discouraged, not encouraged. There has to be a deterrant, a penalty factor.
Hence I would propose as a 1/2 way house, a lower interest rate up to 2015 or 2016. We will have to have the budget balanced as higher interest rates kick in then after that date.
This might placate the French.
@Sporthog, superb idea. So a 1% margin for three years, 2% for the next 2 years and 4% thereafter. You should have been on the negotiation team as this seems to represent a win-win, and focuses mind.