INTEREST RATES ISSUE:THE GOVERNMENT is facing considerable hurdles in its campaign to cut the cost of its bailout loans amid signs that France continues to demand a big concession on tax from Ireland.
Taoiseach Enda Kenny said at the EU summit in Brussels that he was “more hopeful” of an interest rate cut after he spoke on Thursday night with French president Nicolas Sarkozy.
However, a senior European figure said it remained the case that flexibility was required from both sides. The source also said there was greater reason for optimism a week ago than when the summit broke up yesterday.
Before leaving Brussels, Mr Kenny said progress had been made and described his meeting with Mr Sarkozy as “warm and convivial”. He declined, however, to set a deadline for a resolution.
The two leaders clashed at the Taoiseach’s first European summit in March, when Mr Kenny refused to yield to Franco-German pressure to dilute Ireland’s corporate tax regime.
German chancellor Angela Merkel is perceived to have softened her stance since then, but Mr Sarkozy is still pressing the Government to increase the 12.5 per cent corporate tax rate.
Mr Kenny has refused to budge and said yesterday that the rate was “unmovable”.
During the summit, which was overshadowed by the political and financial crisis in Greece, Ireland was praised by the European Council for the progress it had made in the execution of its bailout commitments.
Mr Kenny said other EU leaders reassured him that Ireland would receive protection from any spill-over impact of “anything untoward” happening in Greece.
“I wanted to make it crystal clear that as members of the EU . . . that others should not be blown sideways in any consequence of that and I was reassured on that basis,” he said.
Although there was no sign of a deal to settle the stand-off over the interest rate on the bailout, Dr Merkel told reporters she was “very impressed” with Ireland’s implementation of the bailout plan and Mr Sarkozy said the Irish rescue effort was “on track”.
For many weeks discussions between Dublin and Paris centred on a compromise related to draft legislation to create a common consolidated corporate tax base (CCCTB) in the EU.
Such a scheme would establish a pan-European business tax system and would weaken tax competition by reallocating tax receipts to countries in which revenues are received.
Although Mr Kenny has said the CCCTB was a backdoor route to tax harmonisation, one option under consideration was for the Government to make a commitment to engage seriously in talks on the legislation.
An informed source said, however, that this was insufficient for France. The senior European figure suggested Mr Kenny was offered “something really soft” at his first summit, shortly after he took office.
The original proposal was that the Government would promise to engage constructively in tax co-operation as provided in the Euro-Plus pact, a German-inspired initiative in which euro-zone and other countries seek to improve their competitiveness.
The pact includes a reference to a common corporate tax base.
The source said the Taoiseach argued that it was far too risky for Government to do that, but said other leaders believed he was in a position to do so given the strength of his electoral mandate. Something stronger was now required from Ireland.
At the behest of Belgium, EU leaders agreed yesterday to make a reference in their summit communique to the CCCTB, which said the European Commission’s proposal on this front was in line with the Euro-Plus deal.
However, Mr Kenny and his spokesman firmly ruled out that its inclusion had any connection to the discussions on Ireland’s interest rate.
The spokesman said there was no basis to any suggestion that CCCTB was replacing the corporation tax rate as a basis for negotiations on the interest rate. “The Taoiseach ruled that out quite clearly. It is not a binary option.”
Mr Kenny said the reference in the communique simply meant the draft legislation would be discussed. “It does not mean anything other than there will be a discussion on it . . . I have already made our view very clear that we regard this with a healthy scepticism.”