Cheaper loans if State backs German plan for euro zone

GERMANY HAS indicated that reducing interest rates on EU-IMF loans to the Republic depends on Dublin’s attitude to Berlin’s euro zone reform proposals, to be discussed at the EU summit in Brussels.

Senior officials around chancellor Angela Merkel are preparing a “Competitiveness Pact” to improve euro zone competitiveness. Berlin is anxious to frame the draft proposals, to be discussed over a lunch meeting of leaders, as a series of mutual inter-governmental agreements rather than a German reform diktat.

But it is clear in Berlin and elsewhere that Ms Merkel is in a strong position to create the framework for the discussion ahead of a deal next month.

With German minds concentrated on the big picture, attention has yet to focus firmly on individual details of national importance, such as future interest rates for Ireland’s EU-IMF loans.

But Berlin officials have dismissed a suggestion from the European Commission that the chances of cutting a deal will be harmed by making it an election issue.

“From our perspective we have the deal we have, to which all parties have agreed,” said a senior government official of the EU-IMF deal. “What the election themes are in Ireland is Ireland’s affair.”

Those familiar with the package say it would be impossible to change everything the outgoing Government agreed with the EU-IMF negotiators, but that a limited shift on interest rates might be possible if further tax savings could be delivered, and if Dublin displays a positive attitude to euro zone reform proposals.

“It’s a global thing and the interest rate is one of the cogs. Once it all moves in the right direction, fine,” said another well-placed source in Berlin, adding that interest rate change “is not one of those things we’ve ruled out.

“But if we’re going to do something for this you’re not going to get it for free. You have to give something in return.”

Berlin wants a streamlined discussion and intergovernmental commitment in March to make co-ordinated pragmatic chances to the zone’s economic social systems.

This could range from harmonising the retirement age to agreeing common basis for measuring corporate taxation, though not tax rates.

What Berlin doesn’t want is a decade-long discussion about treaty change or another failed competitiveness agenda “with contradictory aims”.

Considering its ambitious plans, Germany is unclear so far about who will decide what is exemplary economic policy or how agreement can be reached on co-ordination of vastly different social systems, labour markets and wage agreement traditions.

Ms Merkel’s team are aware that, given its current economic upswing, they will face accusations of using Germany as the yardstick.

“We are not the best in everything,” insisted one official. “But it’s clear there are areas where some countries will have to make a bigger effort than others.”