IMF is only one player in a three-part drama


ANALYSIS:THE FOLK from the European Commission and the European Central Bank (ECB) are asking why it is that their counterparts from the International Monetary Fund (IMF) are getting all the attention.

After a hard day bailing out the profligate Irish, they go back to their hotel rooms, flick on the telly only to hear "IMF this . . ." and "IMF that . . .".

"These Irish are ingrates," they fume. "European money has built roads and fattened farmers on this island for decades," bellow Olli Rehn's minions. "Without tens of billions of euro from us, their infernal banks would have melted down long ago," exclaim the central bankers from Frankfurt in frustration.

What has the IMF ever done for Ireland, they ask? The answer is nothing, but despite this, the exotic Washington types show up and get the movie star treatment. It's so unfair.

The serious aspect of all this is that what is happening now is very far from being driven exclusively by the IMF - the impression that one might easily get from the broadcast coverage.

This bailout involves three separate institutions. All are different. They have different origins, influences, interests, priorities and objectives. This matters a great deal.

Corporation tax is a case in point. The IMF, as the world's economic crisis firefighter, wants to put out the Irish fire and go home. The best way to do that is to ensure this economy grows. Raising corporation tax by even half a percentage point would destroy the commitment to the 12.5 per cent rate. That would be a hammer blow to hopes of growing the foreign-owned sector - this economy's most dynamic, by a distance.

No doubt, too, the US corporate sector in this country is urging its government to exercise influence on the matter at IMF headquarters. And as the US is by far the biggest shareholder in the IMF, it has plenty of clout there.

All things considered, the IMF should support the maintenance of the tax rate on profits and oppose any increase.

The ECB is unlikely to be concerned much either way about corporation tax. It is the most narrowly focused of the troika, with a remit to maintain price stability in the euro zone.

There may be concerns, given that it is located in Frankfurt and steeped in Teutonic heritage, that it would do Germany's bidding on corporation tax. But to do so would be leave it open to an accusation of being subject to political influence.

The ECB, even more than most independent central banks, is hyper-allergic to any such impression or accusation. Its interests in Ireland are to reduce its exposure to credit risk from Irish assets and ensure that the festering banking system here does not cause euro zone-wide financial instability.

In sum, the monetary authority will most likely keep its nose out of fiscal affairs.

That leaves the commission. It also cherishes its independence. It must do. It acts as referee among the member states in the EU. If it is seen to be showing favouritism it would lose legitimacy and clout.

A demonstration of its independence is that it has traditionally been seen as a friend of the small countries because it stands up to the bigs when they throw their weight around and try to bend the rules.

No less than the ECB, the commission is not here to do other member states' bidding.

That is not to say that it won't come to its own conclusion that a big hike in profit tax would help squeeze the deficit, but I doubt it.

So even if some of the other euro zone members push hard for a tax hike, they have limited scope to bring pressure to bear.

Besides, at stake now is the future of the world's second most important currency and the stabilisation of the ravaged Irish economy. Both are related. Ireland's annual corporation tax revenue of less than €4 billion is utterly insignificant in that context. The rate is likely to remain unchanged, but that there is even a possibility of an increase being imposed is just one cost of the involuntary loss of sovereignty.

"What is happening now is very far from being driven exclusively by the IMF