Friday 22 September 2017

Ireland is in his sights

French president has targeted our low corporation tax rate but is facing his own struggles after a lacklustre three years in the Elysee

The assertion by Nicolas Sarkozy that Ireland can't expect to receive European aid if we insist on retaining our 12.5pc company tax rate demonstrates just how much our position in Europe has been weakened since we were forced to accept the EU/IMF "bailout" last November.

Speaking to Airbus workers at the aircraft manufacturer's headquarters in Toulouse, the French president told his audience: "I deeply respect our Irish friends' independence and we have done everything to help them.

"But they cannot continue to say 'Come and help us', while keeping a tax on company profits that is half [that of other EU member countries]."

Sarkozy's remarks will have sent shivers down the spines of ministers, officials and IDA executives. Less than two months after the €85bn EU/IMF bailout, the issue of Ireland's 12.5pc corporate tax rate, the lowest in the EU, was back on the agenda. This is despite assurances we received last November that the 12.5pc tax rate was safe.

So were the assurances we received worthless? Now that we have taken the EU/IMF shilling, will we be forced to dance to Sarkozy's tune?

After all, it's not as if this is the first time that there have been calls for an increase in Ireland's company tax rate. The EU Commission is currently finalising plans for the "harmonisation" of the taxation of business profits throughout Europe.

Subsidies

The European Commission is widely expected to recommend that company profits be taxed in the country from which revenues are received and not, as is currently the case, in the country where goods and services are produced.

While such a change would, if implemented leave Ireland's nominal corporate tax rate untouched, it would in effect mean that Irish-based multinationals would pay a far higher effective tax rate on their 'Irish' profits than they do at present.

So is Ireland's low corporate tax rate doomed, a victim of the hostility of the European Commission, our European 'partners' and the State's collapse into de-facto bankruptcy?

Maybe, maybe not.

While this week's speech was ostensibly aimed at Ireland, its real target audience was almost certainly located much further east, in Germany to be precise. After lambasting Ireland's supposedly "unfair" corporate tax rate -- which was a bit rich given that the WTO ruled last year that French subsidies to Airbus were illegal under international trade rules -- Sarkozy went on to tell his audience: "We cannot speak about economic integration without the convergence of fiscal systems . . . With [German Chancellor Angela] Merkel, we are going to reinforce European economic integration and we're going to progress towards fiscal convergence."

Not if Chancellor Merkel has anything to do with it.

At every stage of the worsening Eurozone financial crisis, Germany has stoutly resisted efforts to turn the existing monetary union into a fiscal union.

Crisis

While France has consistently sought to use the crisis to pave the way for a European fiscal union with a common treasury and sovereign debt the word from Germany, whose citizens would bear most of the cost of any European fiscal union, has consistently been 'Nein'.

Germany's insistence on putting its own interests first marks a sea-change in the internal dynamics of both the EU and the eurozone. Ever since the formation of the European Coal Steel Community way back in 1950, the European project had been politically dominated by France.

That situation began to change gradually after German reunification in 1990. Over the next 21 years, as Germany became a more "normal" country, its influence over the EU gradually increased. This has largely been at France's expense. And the eurozone crisis has further accelerated the decline in French influence over the EU.

For a country that attaches such importance to its international status, being eclipsed by Germany represents an intolerable affront. In the four years since he was first elected president the hyperactive Sarkozy has battled vainly to halt France's relative decline.

In many ways Sarkozy is an unlikely French champion. He is descended from dispossessed Hungarian aristocrats on his father's side while his mother's background is Greek-Jewish.

A mediocre student, he is virtually unique among senior French political, business and administrative leaders in not having graduated from the elite Ecole Nationale d'Administration. After an extended academic sojourn he eventually qualified as a lawyer.

While Sarkozy's university career was undistinguished he didn't completely waste his time -- becoming involved with the youth wing of the Gaullist movement. This smoothed the path to his election as a local councillor in the Paris suburb of Neuilly-sur-Marne in 1978 at the age of just 23.

Five years later, he became mayor and was elected to the National Assembly in 1988. With no prohibition on the dual mandate in France, Sarkozy served as mayor for 19 years even as he climbed the greasy pole of French national politics.

In his early years Sarkozy was a protégé of Jacques Chirac, who appointed him as minister for the budget in 1993. However, 1995 he broke with Chirac and backed his rival Edouard Balladur for the presidency.

When Chirac emerged victorious and was elected president Sarkozy found himself out in the cold. But Chirac was forced to reappoint Sarkozy to the cabinet as minister for the interior following Chirac's re-election as president in 2002. Sarkozy was promoted to finance minister in 2004.

During his second period as a cabinet minister Sarkozy engaged in a bitter struggle with Alain Juppe, Chirac's favoured political heir, to secure the Gaullist nomination for the 2007 presidential election. The issue was decided in Sarkozy's favour when he overwhelmingly defeated Juppe in the November 2004 leadership election of the Gaullist UMP party with the votes of 85pc of members.

This victory put him in pole position to succeed Chirac two-and-a-half years later.

After his election to the UMP leadership, Chirac briefly resigned from the cabinet -- returning as interior minister in June 2005.

During his second term as interior minister he became one of the most divisive figures in French politics, famously describing rioting youths of North African descent as "racaille", a term politely translated as rabble, in August 2005.

While his use of robust language may have appaled the liberal tendency, it did him no harm at all on the right, and ensured a comfortable victory over the socialist candidate Segolene Royal in the May 2007 presidential election.

For those who had hoped for a break from the discredited and corrupt Chirac regime, Sarkozy has proved a severe disappointment in office. Apart from successfully raising the retirement age, his concrete achievements have been few and far between. Instead most attention has focused on his colourful private life. In February 2008 Chirac married the former model Carla Bruni. The wedding came just four months after he had divorced his second wife Cecilia.

Now Sarkozy is just 16 months away from having to seek re-election. With little to show for his first term of office, the opposition socialist party is being widely tipped to oust him, particularly if they nominate current IMF managing director Dominique Strauss-Kahn as their candidate.

Ireland's 12.5pc company tax rate may or may not survive but, even if it doesn't, Sarkozy's presidency could have come to an end even sooner.

Irish Independent

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