| 9.5°C Dublin

Our fight to survive: EU in Noonan's line of fire

The 'mother and father' of political and diplomatic battles is looming for Ireland as Finance Minister Michael Noonan goes into tomorrow's eurozone ministers' meeting in Brussels.

He will seek to form a grand alliance of smaller European countries in our colossal battle with France and Germany to stop the "torturing" of Ireland and save its low corporation tax rate.

And although taxation rates will not be on the agenda, Mr Noonan intends to use the occasion to build up a relationship with politicians from other countries in the 17 member eurozone.

In the past, Mr Noonan has been critical of the previous government for failing to nurture good relations with countries such as Belgium, Luxembourg, Holland, Hungary, Latvia and Lithuania, many of which have common cause with Ireland on the taxation issue, and have in the past been useful allies.

Despite the positive start the new Government has made, Ireland is facing into a monumental battle against the German and French leaders, Angela Merkel and Nicolas Sarkozy, who are insisting we surrender our low corporation tax rate in return for more favourable bailout terms.

Former Tanaiste and Justice Minister Michael McDowell said Ireland had allies in its battle against France on the issue of our corporation tax.

Writing in today's Sunday Independent he said: "When we are being treated badly, we should make that very clear. But the smaller countries in Europe know full well what Sarkozy is up to. And Ireland will have friends in taking a stance against the bullying of Sarkozy."

Also writing in this newspaper today, UCD economist and government adviser Colm McCarthy said EU leaders must accept the deal cannot be implemented as it currently stands and a new debt crisis is now looming. "The assumptions [in the deal] underlying the bank refinancing have come apart. A zombie banking system will undermine any prospect of economic recovery," he said.

Mr Noonan is hoping to draw on traditional links with other small European countries like Luxembourg and Holland as well as Spain, Portugal and Greece. He had criticised the previous government's neglect of such key allies in Europe in recent years in the months before assuming office.

He will be have been heartened by comments made by Luxembourg's prime minister and eurozone chief Jean-Claude Juncker who pointedly said he was not happy with the treatment of Ireland by some governments.

"I'm not happy with the idea that some governments obviously find some pleasure in torturing Ireland in the meetings and outside. I don't like this way of dealing with serious problems," Mr Juncker said.

Senior government sources have said Mr Noonan and Irish diplomats will "exhaust all available avenues" in order to fight the country's corner in the make-or-break discussions.

Mr Noonan is also set to continue the attack on France's effective corporate tax rate of 8.1 per cent, which is lower than Ireland's.

Once in Brussels, Mr Noonan will also be stressing to ministers from the smaller European economies, including a number of the newer EU states in Eastern Europe, that they will be next if France and Germany succeed in their demands that Ireland lower the corporate tax rate of 12.5 per cent. He will also reiterate that, under the EU treaties, corporation tax policy is a matter for member states of the EU to decide for themselves. And he will point out, as former Taoiseach John Bruton has done, that renewed assurances on sovereignty in relation to national taxation were given when a second referendum was held in Ireland to approve the Lisbon Treaty, after the first referendum had been rejected.

In a key speech last week Mr Bruton also heavily criticised the failure of the European Central Bank to use its very explicit powers to rein in member state central banks in countries where credit- fuelled bubbles were developing.

Many of the smaller economies across Europe have copied, with some success, Ireland's lower corporation tax rate in a bid to boost their own small, open and developing economies.

Hungary has a corporate tax rate of 19 per cent while Latvia and Lithuania both have rates of 15 per cent -- just 2.5 percentage points higher than Ireland.

Both countries can be relied upon to defend Ireland's, and their own, right to set taxation rates within their own borders.

Similarly Poland -- where computer giant Dell moved its manufacturing operations from Limerick, attracted by lower wages and a favourable tax regime -- also has a comparatively low corporation taxation rate of 19 per cent.