Defiant Ireland tonight insisted its corporate tax regime was an "absolute red line" as it took a hard-line stance in the opening skirmishes with Europe and Washington over a possible bailout.
On the day a dozen officials from the International Monetary Fund descended on the Irish capital, finance minister Brian Lenihan said the country would not surrender its investment-friendly tax regime as the Washington financial experts began their health check on the economy.
Prompting speculation that no quick deal was in prospect, the government sought to allay mounting public fears that Ireland would cede to demands from Germany and France to raise its 12.5% corporation tax – the lowest of any major European economy – as the price of a bailout.
Comments earlier in the day by French economy minister Christine Lagarde that the negotiations included a change to the tax regime had promoted an immediate backlash in Dublin. Deputy prime minister Mary Coughlan told the Irish parliament that the low rate of tax was "non-negotiable" even though the government conceded that it may need help to deal with what Lenihan called the "very big issues" in its debt-laden banking system.
Ireland's employers' organisation, the IBEC, backed the government. Director-general Danny McCoy said: "Any change in the corporate tax regime would be counterproductive to the collective efforts to reduce the budget deficit. Higher rates would mean less revenue for the state, as investment and jobs have the potential to move to countries outside the EU. This would not be in Irish interests or in the interest of the wider EU."
Former prime minister John Bruton agreed, saying low corporation tax had exceeded government projections for the first 10 months of the year, delivering €300m (£255) more to the state's coffers "in bad times" than expected.
Nick Parsons, strategist at National Australia Bank, said a deal was inevitable but that Ireland was in no hurry to come to an agreement with the EU and the IMF; markets were being soothed by mounting expectations of a financial aid package. Ireland's cost of borrowing in the bond markets fell, while Spain also managed to sell long-term bonds amid the uncertainty.
Lenihan said the creation of a special fund for the country's banks would be a "very desirable outcome", but insisted no final decisions had been made and that it was possible that the funds would be made available "but not drawn down".
His remarks exposed differences with the Central Bank of Ireland governor Patrick Honohan, who had attempted to calm anxious markets by saying that he expected Ireland to accept "tens of billions" in loans from the EU and IMF.
Honohan also gave the first clues of what a rescue package might look like, saying the interest rate charged on any loans from the IMF and/or the European Central Bank will be roughly in line with previous IMF loans, but said the issue was complicated.
Despite the loss of investor confidence that drove Ireland's borrowing costs to a record 9% last week, Honohan remained hopeful that a show of confidence from the international community would mean that any loan would be used only in a dire emergency in the banking sector.
"It will be a large loan because the purpose of the amount to be advanced, or made available, is to show Ireland has sufficient firepower to deal with any concerns of the market," he said. "We're talking about a substantial loan."
David Cameron dropped a broad hint that Britain would not offer a bilateral loan to Ireland because it would add to the UK's own €155bn budget deficit. The prime minister told a Commons committee that "a bilateral loan is money that you have to go out and raise in order to lend it".
This makes it more likely that the UK will channel funds to any bailout via the EU contribution.
Any such EU rescue is likely to mean a major restructuring of the banks, as Lenihan acknowledged: "The main focus of the ongoing consultations will be on the banking situation – and, yes, there are very big issues there and in this regard our officials will over the coming days be working closely and intensively with the officials from the EU Commission, the ECB and the IMF," he said.
In tetchy exchanges in the Dáil, Taoiseach Brian Cowen rejected suggestions that Ireland was surrendering its independence. "There is no question of loss of sovereignty for Ireland," he said. He predicted that the government would pass its austerity budget on 7 December which he stressed would be a "demonstration of the sovereign will of the Irish people."
Just before he left the National Convention Centre on the river Liffey he fended off charges that the Irish people had been left humiliated and shamed now that the IMF had its foot in the door.
The Taoiseach stressed that the country "already shared its sovereignty" in terms of being in a common currency zone.
(source:guardian.co.uk)
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