Ireland's issues 'pose no danger' to euro zone

GERMAN REACTION:GERMAN CHANCELLOR Angela Merkel has called for calm on financial markets by insisting that Ireland's financial difficulties pose "no danger" to the euro zone.

Dr Merkel refused to comment in detail on whether Ireland will need assistance – she sees “no need at the moment” – but said any aid recipients would need to increase their competitiveness.

“I don’t think that the euro zone is in danger but we are experiencing turbulence and situations that I couldn’t have dreamed of 18 months ago,” she said on German public television. “The most important thing now is that, alongside the measures already agreed, we make a better job of co-ordinating our economic strength.”

Leading members of her Christian Democrats (CDU) have suggested Ireland should consider a hike in its corporate tax rate.

“If a consolidation plan is presented, it would be helpful for consultations to know what improvements can be made on the income side,” said Michael Meister, CDU finance spokesman.

Officially, Berlin is anxious not to give the impression of placing any pressure on Ireland.

“This is a question of good politics and is not up to other countries to decide,” insisted a finance ministry spokesperson yesterday.

Ireland’s low tax rates, though, long a sore point in Berlin, are again in the spotlight after the collapse or near-collapse of several German banks with Irish subsidiaries. Beyond the tax revenue lost to the German economy, many senior politicians believe the tax rate encouraged the kind of reckless, unsupervised behaviour that will now need to be sidelined.

Despite all this, a positive feeling towards Ireland is still palpable.

“People understand here that Ireland’s problem is just the banks and there is little doubt that any loans would be paid back,” said Dr Jens-Boysen-Hogrefe of the Institute for the World Economy in Kiel.

He called a proposal to bail out Irish banks rather than the State “an elegant solution” to the current problem. Berlin’s tough line on bailouts – and its call for private bondholders to take a haircut – was, he said, governed largely by domestic concerns.

"What they are afraid of the most," he said, "is a big headline in the Bildtabloid – 'First the Greeks, now the Irish'."