THE 2008 banking guarantee, which is the cause of Ireland’s fiscal difficulties, saved European banks as well as Irish banks, former taoiseach John Bruton said yesterday.
He also said that those in Europe who believed Ireland should raise its corporation tax rate should realise how important it was to Ireland’s ability to repay its debts.
Mr Bruton, president of IFSC Ireland, a private-sector initiative by tenants of the International Financial Services Centre, was speaking at a seminar in Dublin for the funds’ industry where the main message was the strength of the non-domestic element of the Irish economy.
Ireland’s corporation tax rate was a key reason why international business continued to invest in Ireland and locate here, he said.
What many did not realise was that the policy of attracting foreign investment through tax policy went back to 1956 and predated the European Union.
The low corporation tax rate was the model on which Ireland’s economy had been transformed.
“It is appropriate and necessary for a country that is an island off an island on the periphery of Europe.”
Some from continental Europe who have been commenting adversely on the rate did not realise how buoyant Irish corporation tax receipts were, he said. The receipts equalled 2.5 per cent of Irish gross domestic product compared to 1.1 per cent of Germany’s, “notwithstanding the huge exports of German industry”.
Mr Bruton said he was sure that those people who had been generous enough and prudent enough “in their own interests” to loan Ireland money recently wanted their money repaid.
Corporation tax was “a nice little earner” in Ireland and was one of the ways Ireland would be able to repay its debts.
It would be “counter-intuitive” to insist on a change to the rate given that it was so important to Ireland’s ability to repay the money it had been given.
The banking guarantee was helpful to Irish banking but also preserved the “solvency and continued activity” of banks all over Europe.
If Irish banks had failed, there would have been a “contagious series of bank collapses across Europe”.
The reason for Ireland’s fiscal burden was the bank guarantee and by taking on this burden, the Irish taxpayer prevented what could have been a destructive shock for European banks because of their exposure to Irish banks.
This exposure existed because European banks thought they could make more money lending to Irish banks than lending elsewhere. They loaned the money even though they knew about house price rises in Ireland and had access to the data published by the Irish Central Bank.
He said helping Ireland get through the current difficulty was prudent and in the interests of the lenders as well as the borrowers. Ireland needed stability and time so that assets that have real economic value were not sold at firesale prices.
Fergal O’Brien, chief economist with the employers’ group Ibec, said the majority of its members were optimistic in relation to their businesses.
