Ireland ‘should lower corporate tax rate’

TROUBLED eurozone countries like Ireland should be encouraged to lower their corporation tax rates to attract more industry and Germany should be willing to lose some of its business to them, two eminent German economists argue.

The two, well-known authors and journalists, blame Germany’s tough approach and delay in responding to the economic crisis for aggravating the problems of the periphery economies over the past few years.

They say that Chancellor Angela Merkel’s hesitant response to the crisis was influenced by a strong anti-bailout campaign in the popular German media and partly by a moral argument about punishing the wrong doers.

Thomas Frick, chief economist at Financial Times Deutschland, said: “As a result I believe the Germany government, despite having good intentions, made the crisis even worse.”

He compared it to the quick and successful response by Chancellor Merkel when she assured German depositors in October 2008 that their savings were secure and that the government would guarantee all private investments.

“If the financial bailout package had been put into place at the end of 2009 with a guarantee that we would not allow Greece to go under, then spiralling interest rates and risk premiums could have been avoided,” he said according to a report in the German news service Deutsche Welle.

Norbert Haring, an editor with one of the country’s leading business newspapers Handelsblatt, argues that the current approach is wrong as it is based on arguments that are correct for a big industrial and exporting nation like Germany.

Forcing countries to make savings is not enough. The countries must receive support to build up their industrial sectors but he fears there is not sufficient political will to make changes such as allowing countries to lower their corporation tax rates.

“You only have to look at how difficult it was for Ireland to defend its lower rates,” said Mr Haring adding that the country came under a lot of pressure from France and Germany to raise the rate in exchange for the debt rescue package.

He argued that if Germany gave up a little of its industry, it could prevent Greece and Portugal from losing theirs.