Noonan attends euro zone meeting

European discussions on corporate tax levels should take effective rather than nominal rates into account, Minister for Finance Michael Noonan has said.

Speaking in Brussels, Mr Noonan said Ireland had an effective corporate tax rate of 11.9 per cent and a statutory rate of 12.5 per cent. This was lower than rates in many other European countries, including France, which is putting pressure on Ireland to alter its rate in exchange for reduced interest terms on its EU/IMF bailout, he added.

“I think the French economic minister as late as last week was making a case about the lightness of touch in corporate rates in France to attract inward investment,” Mr Noonan told RTÉ Radio.

“If the debate is to continue I will be pushing that it takes into account the effective rates rather than the nominal rates because nobody pays the nominal rates as far as I see.”

Figures obtained by The Irish Times from the French Agency for International Investment showed the country had an effective corporate tax rate of 8.2 per cent but a nominal rate of 33 per cent.

Meanwhile, Mr Noonan said bank bailout costs resulting from upcoming stress tests would be "very high" but were unlikely to be anything like "extravagant" figures quoted last week.

"I already said that it will be more than €10 billion," he said.

Ireland's international bailout package, agreed in November, included as much as €35 billion to be injected into the banks, and it was last week suggested that all of that sum might be required.

Mr Noonan is attending a meeting of euro zone ministers in Brussels, ahead of a summit of EU leaders later this week. The meeting was a technical one that sought to increase the lending capacity of the bailout facility from €250 billion to €440 billion.

European central bankers signalled this evening they stood ready to raise interest rates next month despite uncertainty linked to Japan's nuclear crisis and the ongoing struggles of Greece, Ireland and Portugal.

The ministers sealed an agreement on funding of a new safety net, but left it to a summit of EU leaders later in the week to work out a deal with Ireland on debt relief and forge a compromise on boosting an existing rescue facility.

Meanwhile, Portugal's government warned that it could step down even before that summit takes place if opposition parties block new spending cuts in a parliamentary vote expected on Wednesday.

That would ratchet up pressure on the country to follow in the footsteps of Greece and Ireland and seek a bailout from the European Union and International Monetary Fund (IMF).

"Inflation in the euro area is on the rise," ECB president Jean Claude Trichet told the Economic and Monetary Affairs committee of the European Parliament.

Several of Mr Trichet's ECB colleagues drove home the warning in even stronger language. Luxembourg's central bank chief Yves Mersch used the term "very high vigilance" to describe the bank's approach and Italy's Mario Draghi said policymakers stood ready to act in a "firm and timely way".

Higher rates could make it more difficult for the economies of Greece, Ireland and Spain to recover as all have a high percentage of floating rate mortgages, fragile banking sectors and major budget consolidation programmes in place.

Reuters