France Tells Ireland: Increase The Corporate Tax Rate, Or We Won’t Cut Your Bailout Rate

France Tells Ireland: Increase The Corporate Tax Rate, Or We Won’t Cut Your Bailout Rate (Business Insider, June 8, 2011):

France is set to exercise its veto in order to ensure that Ireland does not secure a cut to the interest rate on its EU bailout without first increasing its corporate tax rate.

The news, reported in both the Irish Independent and Irish Examiner this morning, comes on foot of Michael Noonan’s stern declaration yesterday that Ireland would not be “waltzed around” and sacrifice the “heart and soul” of its economic policy.

The Rxaminer’s Ann Cahill and Paul O’Brien quote a French source as saying: “The French are digging in. They will use their veto.”

“To those who are opposing us and trying to force us to change our corporation tax rate, I tell them once more today that they have no negotiating position,” Noonan had told the Dáil yesterday.

Those statements may, however, be seen as Noonan softening the ground somewhat – as he also said the potential savings of a cut to the 5.83 per cent interest rate currently paid by Ireland had been dramatically overstated.

A reduction to 5.23 per cent would mean an annual saving of €148m, he said, while a cut to 4.83 – a full percentage point lower than the current average rate Ireland pays – would mean savings of around €200m.

The rate could not be cut on loans that had already been drawn down, Noonan clarified, and the amounts of money Ireland would save by sacrificing its corporate tax rate were “so small” compared to the income it might lose by raising corporation tax.

The Independent notes that European economics commissioner Olli Rehn has previously stressed the need for “unanimity” across all member states before Ireland’s rate can be cut.

It remains possible, therefore, that the French decision to play hardball could ultimately mean that Ireland will cut its losses and make do with its current interest rate in order to stave off the risk of seeing major multinationals.

The next meeting of the European Council is set for June 17.

Read more on the French stance in the Irish Examiner>

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