France likely to use veto on Irish rate cut

IRELAND faces a fight to have its bailout interest rate cut after France insisted that Irish corporation tax be increased firstly.

Those close to the efforts to convince French President Nicolas Sarkozy to agree to the cut said: “The French are digging in. They will use their veto.”

Finance Minister Michael Noonan told the French he would not concede on corporation tax, saying it was responsible for Ireland’s export-led growth. He was willing to forego the saving on interest repayments of between €148 million and €200m a year.

“I will not be waltzed around by any member state, especially when the gain is so small in contrast to the potential industrial promotion,” he told the Dáil.

“The value of the reduction is being exaggerated and, in my view, too much is being made of this... there is no way whatsoever that I will negotiate with anyone in the French government to concede anything on the Irish corporation tax rate for that amount of money.”

Ireland is paying close to 6% for its €67.5 billion loan, while Greece and Portugal are paying closer to 5%.

Mr Noonan also had a message for Mr Sarkozy and German Chancellor Angela Merkel, who supports him.

“To those who are opposing us and trying to force us to change our corporation tax rate, I tell them once more today that they have no negotiating position, because the amounts of money are so small in regard to the adjustments we are being required to make that we will not concede,” he said.

European Economics Commissioner Olli Rehn believes Ireland should pay the same as Greece and Portugal. He said the interest rate should be based on a country’s ability to pay rather than on the concept of moral hazard, or the belief countries need to be punished to prevent them running up big debts again.

Meanwhile, European Commission president Jose Manuel Barroso admitted that if Greece continues on a downward slide, it will make it more difficult for Ireland to get back to borrowing from the markets next year.

He said countries were independent and the markets did not differentiate between nations.

Finance ministers meet in Brussels on June 20 and EU leaders will hold their summit four days later to discuss the issues.

Mr Rehn said: “June is a critical month in terms of overcoming the crisis in Europe. We are not fully in the endgame, but we can make June the beginning of the end if we make bold and difficult decisions by the end of this month.”

The commission has told Ireland to continue to implement the programme agreed with the EU, ECB and IMF. All of their recommendations must be endorsed at the EU leaders’ summit later this month.