German officials mystified by inaction on Irish corporate tax rate

Cantillon: Berlin can bark, but will it bite?

Germany’s finance minister, Wolfgang Schäuble: in Dublin tomorrow. Photograph: Joshua Roberts/Reuters

Germany’s finance minister, Wolfgang Schäuble: in Dublin tomorrow. Photograph: Joshua Roberts/Reuters

 

German finance minister Wolfgang Schäuble is in Dublin tomorrow to help Ireland’s Halloween party with a €150 million loan from Germany’s KfW state development bank. Matched by the European Investment Bank (EIB), this is the starting capital for Ireland’s Strategic Banking Corporation of Ireland.

The hope is that these AAA-rated loans can provide cash-starved Irish companies with competitive credit.

It’s not the only sweetener for Ireland backed by Germany in recent years. Berlin averted its eyes when the ECB “took note” of Ireland’s promissory note retooling, something many say was a detour into forbidden monetary financing.

Earlier this month, meanwhile, the Bundestag agreed to change its bailout law to back Ireland in its effort to repay its IMF loans quicker than EU bailout funds.

As on previous occasions where Ireland was looking for something from Berlin – the prom note reconfiguration, or the bailout itself – Berlin demanded something in return, having already given Dublin what it wanted first.

“Solidarity is not a one-way street,” said deputy finance minister Steffen Kampeter, “and we expect solidarity from Ireland ... for example on tax questions.”

Given the regular German swipes at Ireland’s 12.5 per cent tax rate, it’s interesting that Berlin never followed the Cyprus strategy. Last year, Nicosia was “encouraged” to make a sovereign decision to raise corporate tax rates as a precondition for the required assistance.

One reason is that Berlin was never as obsessed by the Irish 12.5 per cent tax rate as the Irish are, or believed the Germans were. Instead, the Berliners wanted Dublin to accept, with the OECD tax talks, that the tide had gone out on tax optimisation tools such as the Double Irish.

But with that now buried, senior German officials are mystified why, on the unpopular Irish corporate tax rate, their political bosses are all bluster and no blackmail. Listening on to Mr Kampeter’s Bundestag demand that Ireland must do more on its tax system, while agreeing to Dublin’s IMF loan request, an experienced German official looking on murmured: “The barking dog rarely bites.”

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