German talks don’t bode well for Ireland

Any hopes that Ireland had of recouping some of the money it put into its banks, or having the banks borrow to cover any shortfall that shows up in the current asset tests, appear to be dashed by the big German political parties.

German talks don’t bode well for Ireland

Ireland may also find itself under pressure to sign up to the financial transaction tax which would see derivatives taxed in Ireland for the first time and which the Government has resisted, fearing such funds would leave the country.

Both Angela Merkel’s centre right CDU and the Social Democrats, who have begun exploratory talks on forming a coalition government oppose the EU’s bailout fund, the ESM, giving money directly to stressed banks.

The chancellor’s CDU party wants every country to have its own bank resolution fund made up of contributions from its financial institutions and hope that in about a decade the funds could be merged to form an EU pot worth €55bn.

Now the Socialists say they favour a central fund being put in place immediately, but it should be made up of contributions from a financial transaction tax, which they estimate would yield about €30bn a year.

They object to the ESM being used to fund banks as they say this still leaves overall responsibility with the taxpayer since under current EU treaties it could only lend to banks via their host member state.

A spokesperson for Carston Schneider, who is involved in the negotiations on behalf of the Socialists, confirmed their position is that whoever wanted a common resolution fund would have to implement the FTT.

The problem with this idea is that currently just 11 countries have said they will adopt this tax with eurozone members Ireland, Luxembourg and the Netherlands refusing and, as a result, if it is adopted it will be done so between the 11 as an inter-governmental measure.

The CDU also insists that the EU treaties must be changed to allow a central bank resolution fund to be established, irrespective of where the money comes from, but changing treaties is an unlikely prospect especially with Britain wanting to renegotiate the terms of its EU membership.

There were reports in the Munich-based paper, Sueddeutsche Zeitung, that the Socialists were also demanding that Ireland increase its corporate tax rate but this remained unconfirmed last night.

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