No threat to corporation tax as bailout interest rate cut
Ireland’s stand-off with France over our low corporation tax will no longer prevent the Government from getting cheaper EU rescue loans, it emerged today.
The development came as Eurozone Finance Ministers relaxed their stance in the wake of Greece’s debt problems, Finance Minister Michael Noonan said in Brussels.
France had insisted that Ireland raise the 12.5pc rate before it could agree to give the Government any concession on the bailout.
But eurozone finance ministers today agreed to bolster the bloc’s main rescue fund - the €440bn European financial stability facility - including lowering interest rates, lengthening loan maturities and allowing loans to countries for debt buybacks.
A 1pc decrease on our interest rate payments would be the equivalent of about €240m a year.
The move by eurozone finance ministers is designed to make emergency aid more affordable and stave off contagion to Italy and Spain, where markets have renewed their focus in recent days.
Mr Noonan said there is “no suggestion that a quid pro quo will be coming from anybody to avail of the new pricing”.
“It’s a very significant step in the road towards having a programme that is more tailored to Ireland’s needs,” Mr Noonan told reporters in Brussels.
“I can say with absolute confidence there has been a policy breakthrough, and when we work it out the details will be of benefit to Ireland, specifically in the area of the programme,” he added. “The programme will be more affordable.”
Ireland currently pays almost 6pc to access around €45bn of EU funding.
Portugal pays around 5.5pc, while Greece pays close to 4.5pc.
A specific reduction has still to be worked out, but a deal could be reached by September, the deadline for a second Greek bailout to be inked.
However, he said the savings to be made on the rate cut would not likely feed into next year’s budget.
“The benefit will be over the period of the programme and will be more likely to be long term rather than short term,” he said.
“The costs of the programme to Ireland... will be less as a result of this and this will be reflected in the budgetary arithmetic.”
Mr Noonan also signalled that other changes to the fund - including longer maturities and guarantees for government borrowing - could also help Ireland get back to the markets.
“The easiest way to get back into the market is if the fund, which is triple A-rated, were to guarantee bond issues by Ireland,” he said.
But the markets stepped up pressure as the discussions continued – one big stumbling block is that any changes will need the green light from the European Central Bank.
And the difference between the interest rates on the bonds of Spain and Germany compared with Germany's reached a record high today.
The Italian Economy Minister Giulio Tremonti left the EU talks in Brussels to return to Rome to deal with the crisis.
Meanwhile, European stocks slumped as the discussion on how to save the region continued.
The London market was down more than 1pc, with Paris and Frankfurt off over 2pc. ]
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