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Kenny's grand Brussels blunder has left us running to stand still

Back in March, days after becoming Taoiseach, Enda Kenny made a massive blunder at his first European Council meeting in Brussels. A blunder that will cost the Irish taxpayer many millions.

After three weeks of seeking clarity on this issue, it has been confirmed to me this weekend that at that meeting, a "cocky" Kenny missed a golden opportunity to return home with the much-talked-about interest rate reduction on our bailout package.

At that meeting, the Taoiseach made a plea for fairness in relation to Ireland's case, and that we deserved a rate reduction.

Indeed, other eurozone leaders agreed to a reduction to match those of the IMF. But Angela Merkel and Nicolas Sarkozy insisted Ireland should not get a discount without making a concession: their price, an increase in Ireland's 12.5 per cent corporation tax rate.

Mr Kenny, who, according to Channel 4 reporter Faisal Islam made a "terrible impact" at the meeting, refused to budge on the issue. So, the summit ended with Greece receiving a one per cent interest rate cut, while Ireland got nothing.

Despite coming away empty handed, Mr Kenny came home something of a hero for standing up for Ireland.

But that was not the full story. Confirmed to me in recent days, Mr Kenny was offered an opportunity to secure the rate reduction without having to concede on the corporation tax rate.

A spokesman for Herman Van Rompuy, the president of the European Council who chaired the meeting, confirmed to me Ireland was offered a way out, which the Taoiseach either refused to take or didn't fully grasp.

It has been confirmed that Mr Kenny was not asked to move either on the tax rate or tax base; he only had to promise "constructive engagement on tax co-ordination".

Kenny was being offered a tangible gain in return for an intangible promise.

Had the Irish leader signed up to such a weak commitment, he could have brought home a reduction in Ireland's interest rate and the preservation of our corporate tax rate.

Mr Van Rompuy's spokesman also said that he was "surprised" that Mr Kenny did not accept the offer.

So why did he not take it?

It now appears Kenny was so determined to appear tough on corporation tax that he was blinded to the pragmatic offer on the table.

During the heave against Kenny last year, Leo Varadkar said on Prime Time that if

a sovereign debt crisis arose and Patrick Honohan picked up the phone to the Taoiseach at 3am, he didn't want Enda Kenny at the end of that phone.

What he meant was that he felt Mr Kenny was not smart enough, economically literate enough or politically savvy enough to occupy the top job.

In the absence of the wily Michael Noonan beside him in Brussels in March, that council meeting was Mr Kenny's 3am call and, as Varadkar predicted, he blew it.

For his part, Mr Kenny went out with a game plan and that was that.

"The Government was determined to give a clear and unambiguous signal that Ireland's 12.5 per cent corporation tax rate was essential to its economic recovery. A movement was sought on the issue, and we refused to move on it," Mr Kenny's spokesman said to me last week.

Three months later, Ireland has still not obtained the rate reduction, and as we now know, any reduction will not be back dated but will only apply from here on in. So, the failure of Mr Kenny to secure the rate reduction in March has been and will be extremely costly.

Since then, Ireland has been running to stand still, simply to make up the ground lost by Mr Kenny.

Van Rompuy paid a visit to Dublin three weeks ago, and raised the issue of Ireland's corporation tax when he met Mr Kenny in his office. So there is no doubt that some deal is being worked upon to get everybody off a hook created by Mr Kenny's blunder.

But that pragmatic offer on the table in March is no longer on offer. The French and the Germans are likely to demand more than "constructive engagement".

It seems more likely that the cost will be a concession by Ireland on the harmonisation of the corporation tax base -- or no cut in the ruinous rate. In a worrying statement, Mr Noonan made a crucial intervention two weeks ago when he said he would be willing to sacrifice the rate reduction to protect Ireland's corporation tax rate.

The significance of Mr Kenny's failure to secure that rate reduction was brought once again into sharp focus by the revelation by Mr Noonan that our abusive "external partners" would profit to the tune of €9bn from our rescue deal over its lifetime.

That's €9bn that would otherwise go on hospitals like Roscommon, schools and other public services, but instead will be handed over to our foreign overlords.

That it equates to about one third of our total annual tax take has also led a number of people to once again say that Ireland's rocketing debt mountain is unsustainable and that a default of some sort is inevitable.

I agree. Ireland will and must default, but that default must only be on debts relating to our banks. There can be no question of us reneging on our sovereign debt.

It is criminal to ask the people of this country to pick up the tab for the crimes of bankers in Ireland who have not yet been brought to justice, and the greed of bankers in France and Germany.

Like Constantin Guerdiev, the economist and deficit hawk (as he describes himself), I believe Ireland can only consider a default once we have tackled our budget deficit. And that means real and unprecedented reform of the public sector, which is not fit for purpose in its present state.

Overall, Irish public sector workers by European standards are massively overpaid and underworked and we can no longer afford such lunacy. The Government's attack on civil service fat cats like Declan Collier and Padraig McManus is welcome but doesn't go far enough.

With the IMF/ECB team back in town ensuring we stick to our side of the plan, Brendan Howlin's 'Comprehensive Review' is a golden opportunity to knock some shape into our deeply dysfunctional public sector, and he has to get it right.

A new paper by Guerdiev shows that despite accumulated cuts of €20.5bn since 2008 in current spending, our deficit has remained at €18bn, primarily due to increased social welfare payments.

As a result, there has been no tangible reduction in the gap between government spending and revenue. We have all taken great pain but in reality we are no better off, in terms of our deficit, than we were two years ago.

According to Guerdiev, in the first half of 2011, government spending was at €21.8bn, just €804m less than what we spent in 2008, and that is after three austerity budgets. That is why Mr Noonan finally acknowledged last week that the cuts in December's budget would have to be higher than the €3.6bn previously stated.

This weekend, in the wake of the Portuguese downgrade and the continued crisis surrounding Greece, the cost of borrowing to Ireland for 10 years soared to about 13 per cent, three times the accepted rate.

As a result, the chances of Ireland returning to the markets next year are as unlikely as they have ever been, increasing the expectations of an Irish default. While such an event will not be pretty, it is without question inevitable.

Sunday Independent