Bad timing to hamper interest rate talks

VITAL decisions about Ireland’s debt, including lowering the interest rate on the EU/IMF loans, will be taken over the next few weeks — at the worst possible time for the country.

Taoiseach Brian Cowen will attend today’s summit in Brussels and possibly an extra eurozone summit in early March but very much as a lame-duck leader in the dying days of his government.

By the time the new government is in place, they will have less than two weeks before a March 25 summit to argue for a better deal for Ireland and help shape the harsh new demands being made by Germany and other healthy economies.

“Ireland has two particular problems — the timing of these discussions as they come in the middle of elections, and the issues themselves,” said an EU diplomat.

France is pushing for changes to our corporation tax with French President Nicolas Sarkozy saying our low rate is “lacking in solidarity” and is anxious to link it to any cut in the 6% interest rate.

Ironically Germany, usually the country complaining about the country’s low corporation tax rate, is not supporting this just now but is more interested in harmonising the way each country calculates its tax rates. Also the junior coalition partner in Chancellor Angela Merkel’s government, the FPD is more interested in tax competition and against harmonisation.

France and Germany will unveil some proposals to increase EU control over not just each country’s budgets but also how they achieve the targets aimed at reducing debt and deficits and improve growth. It is expected to include raising the retirement age, fixing pension rates, ending centralised wage bargaining and making it illegal for governments to build up debt.

The European Commission, the member states and the European Parliament are currently working on a similar programme but largely leaving it up to each country how they achieve their targets, whereas the new push from the euro area’s two major players is much more invasive.

Some view this as an attempt by Ms Merkel to reassure voters in the run up to elections in several German states next month. Since she is expected to agree to make the €750 billion rescue fund more flexible, she needs to show she is making the euro-sinners pay for any extra help they are likely to get.

Expert groups from member states are still working on how they will revamp the rescue mechanism but it is expected that this will include cheaper interest rates and possibly a longer loan term — 30 years has been mentioned — and lend money for countries to buy back their debt at much reduced rates on the markets.

Restructuring Greek sovereign debt and Irish bank debt is also on the sidelines but the leaders are not expected to go into much detail today on such issues. Finance Ministers will follow through at their meeting on Monday week where Ireland will be represented possibly for the last time by Brian Lenihan.