Following Ireland's request for billions in aid from the European Union rescue fund, calls for the stricken EU member state to raise its corporate tax rate are increasing in Germany. In continental Europe, many countries have long been miffed by Ireland's 12.5 percent corporate tax rate, which is less than half that levied by many other EU countries, including Germany. They argue that it leads to an exodus of jobs to Ireland and represents unfair competition. In an interview with Germany's tabloid daily Bild published on Tuesday, however, Irish Finance Minister Brian Lenihan rejected those demands.
Lenihan also disputed arguments that Ireland had been the subject of "direct or indirect" pressure from the EU over his country's low corporate tax rate. He said his country was competing with the Far East rather than other EU countries for much of its foreign direct investment.
The Irish minister told the paper that his country is neither bankrupt nor in recession. "We have €22 billion in reserves and a pension fund with €25 billion," he said. The requested aid should show that Ireland, in the worst case scenario, has further avenues at its disposal for obtaining financing and that these still haven't been exhausted, he added.
The finance minister said he was confident Ireland would be able to pay back any loans it receives, and that the country is thankful for the assistance.
Doubts over Ireland's Future as a Low-Tax Country
In Brussels, officials assume that, in addition to making painful cuts in its budget, Ireland will also be unable to avoid raising taxes. "It is probable that Ireland will not continue to be a low-tax country," a spokesman for EU Economics Commissioner Olli Rehn said.
Given that Germany will have to provide a considerable part of Ireland's credit guarantees, criticism amongst politicians in the country over the Irish taxation system is growing. "It cannot be that the companies and residents in Ireland pay lower taxes than companies and residents in the countries that are providing the aid," Hartmut Möllring, the finance minister for the state of Lower Saxony, a member of Chancellor Angela Merkel's conservative Christian Democratic Union party, told the Braunschwieger Zeitung newspaper. "Irish taxes must at least be average or a little bit above."
The finance policy spokesman in the German parliament for the Green Party, Gerhard Schick, also took aim at Dublin. Ireland, he told the Ruhr Nachrichten newspaper, had massively grown its financial sector through "unfair tax competition and lax financial market regulations."
Ireland needs to "improve its banking supervision and increase its revenues," said Carsten Schneieder, a budget spokesman for the center-left Social Democrats in the German parliament.
The irony here is that retaining all sovereignty on the issue of determining its corporate tax rate was a concession the EU, including the leaders of its member states, made to Dublin in exchange for support for the Lisbon Treaty after a first referendum on the EU reforms was rejected by Irish voters in 2008.
The bailout has plunged the Irish government into a deep crisis. On Monday night, Prime Minister Brian Cowen announced that parliament would be dissolved and new elections held at the start of 2011, once a budget for next year has been agreed.
On Tuesday, German editorialists view the developments in Ireland with concern, with some papers arguing it is time to strip Ireland of its tax advantage, others questioning the wisdom of rescuing the country and one paper of record arguing that the bailout is the best solution for Ireland and for Europe.
Business daily Handelsblatt writes:
"Germany and France have been complaining for years now about Irish tax dumping. But now, at a time when they could be forcing the country to correct its course, they appear to be backing down. The governments may still be spitting fire and brimstone over Irish corporate tax, but behind the scenes, Brussels sources say that no one is seriously pushing for an increase."
"The European Commission never carped against the low Irish tax rate. On the contrary: It long argued that the EU member states must be competitive when it comes to taxation in order to prevent reaching too deeply into the pockets of their citizens and corporations. That argument might make sense if there had been true competition, but that was never the case. Ireland was only able to attract companies into the country through a low corporate tax rate because the government in Dublin also had another revenue source. For many years, Ireland collected many billions from the EU funds for structurally weak regions. Thus, EU net contributor Germany, through its contributions to Brussels' budget, indirectly enabled an Irish tax policy that damaged Germany's standing as a place to do business. The mistake now threatens to repeat itself. ... But why should companies in Germany continue to have to pay 30 percent of their profits to the state if they only have to pay half that in Ireland? And why should German taxpayers indirectly support the exodus of jobs to Ireland?"
'Euro Was Equivalent of US' Subprime Securities'
The leftist Die Tageszeitung writes:
"Where earlier countries with small currencies like the Irish pound had to pay high interest, suddenly the unified interest rate of the European Central Bank applied. This magical interest rate also remained very low, because the central bankers geared themselves not towards delicate, small Ireland, but rather towards stable, large Germany."
"For Europe, the euro was equivalent to the US's subprime securities. Both inventions promised a totally new financial world in which credit risks disappeared magically. Suddenly, consumption also seemed possible in financially weak social classes and countries, who, until then, had been shut out of the glittery world of capitalism. With a little bit of financial technology, the social questions appeared to be solved. Now, though, they have returned. That's the real news behind the euro crash in Greece and Ireland. The austerity measures being taken by the governments there are affecting the weakest, regardless whether it means lowering the minimum wage or making cuts to social spending."
"The euro temporarily transformed 'Europe's poorhouses' into flourishing economies, but now the era of low interest rates is over. Forever. And what will become of Ireland and Greece now?"
The center-right Frankfurter Allgemeine Zeitung writes:
The people (of Europe) should know the extent of the risks that are being imposed on them. Guarantees of between €80 and €90 billion are being discussed to save Ireland and its banks. Divided by the total number of Irish, that total is about €20,000 per capita. That's equivalent to the public debt that every German has accrued since the 1970s, including reunification and the banking crisis. In Ireland, of course, that amount also includes public debt accrued up until now as well as the unusually high private mortgages following the bursting of the speculation bubble in the housing market. ... The Irish fall comes after major gains in prosperity, and now countries like Slovakia, where the gross domestic product per capita, at €6,200 falls clearly under the Irish per capita of €30,400 (at €26,500, Germany is also poorer), will be helping to pay for the bailout."
"Just a short time ago, the word was that Ireland isn't Greece. But the crisis in many of the former high-interest rate countries stemmed from the same causes, even if they are taking shape in regionally different ways. Many countries at the edge of the euro zone have profited for a long time from overly low European Central Bank interest rates and over-indebted themselves in the process. As long as the rescheduling of debts remains taboo in the EU for political rather than economic reasons, the bailouts will have to continue. And because you cannot deny the Irish what the Greeks have received, the word could soon be that Spain is not Ireland and Portugal not Greece."
The conservative Die Welt writes:
"Bankers and politicians have been united in their insistence that there is no alternative to the Euro Group's course of action (on Ireland). It's possible that the heads of government and finance ministers really do see themselves compelled to rescue over-indebted euro-zone members. Economically, however, there are indeed alternatives. And the euro-zone countries would do well to examine other possibilities."
"When the third bailout candidate comes knocking in the form of Portugal, followed by Spain and possibly Italy, it will become evident that the chosen path was wrong. The financial markets will soon test the willingness of Germany, France and others to help, to see how far that willingness goes."
"If the euro adventure is not to have a terrible ending, Germany needs to make clear where the limits of its capacity to help lie. It is not about Germany as a nation throwing its weight around, but about keeping a sense of reality. In order to make sure that the cause of European unification receives no lasting damage, one should not make the EU's future solely dependent on the euro. Perhaps the existing currency area cannot be maintained within its current borders."
The Financial Times Deutschland writes:
"At the latest since the dramatic rescue operations during the 2008 financial crisis, it should be clear to European governments that the fate of their countries lies in the hands of a few thousand bankers. An ailing banking system can ruin entire countries. ... Given this dependence, it is remarkable the degree to which European countries still seem to allow their banks to push them around."
"The bailout for Ireland clearly shows that the country's banking sector is a mess. Irish banks are stuck so deep in the mortgage quagmire that their own government can no longer pull them out by itself. All over Europe, large banks are trembling because they have lent the Irish banks far too much money."
"The banks' policy of providing vague and misleading information (for example in relation to stress tests) therefore has to stop. Any institution that implicitly wants protection from taxpayers should be obliged to reveal its risks to the supervisory authorities. Only then will it be possible to correctly assess the real risk of a crisis in Ireland, Portugal or wherever."
The Süddeutsche Zeitung explores that alternative to a bailout -- allowing Ireland to go bankrupt and, ultimately, leave the euro zone. It notes the catastrophe that could ensue -- also for Germany:
"German investors have invested a good €100 billion in Ireland. An Irish bankruptcy would have an effect like the tremors of an earthquake. The same would have held true, incidentally, if we had left Greece to its own fate a few months ago. An economic zone that loses its solidarity would throw into question the business foundation of the EU, and the search for the guilty around the world would be a quick one. All fingers would point to Germany because the Germans have the most money and refused to help out, and because they are already considered to be egotistical, stingy and opinionated."
"On that basis alone, Germany has good reasons to resist the temptation to leave the monetary union. This, by the way, is also a proposal that can be heard these days. Iron Chancellor Angela Merkel is said to have stated that this isn't the euro that had been envisioned and, besides, she didn't introduce it -- it was the work of her CDU predecessor Helmut Kohl and the then head of the Social Democratic Party, Oskar Lafontaine. But this logic is out of this world: As if you could just pull deutsche mark bills out of the basement and put them back into circulation. The fact is that Germany has closely pegged its fate to that of Europe -- and not just in terms of its currency policy. The end of the euro would mean Germany's withdrawal from this common world. And that would be the real catastrophe."
"The current annoyance by the Americans and the French at the success of German exports is just a foretaste of the hostilities towards Germany that would be unleashed. One against the rest: That's something that this country cannot sustain -- neither economically, not to mention politically."