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Dublin: 15 °C Saturday 20 July, 2019
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Government may accept borrowing limits in return for bailout rate cut

Ahead of crucial European summits, ministers say corporation tax is off the agenda – but that other concessions could be made.

Michael Noonan speaks with German finance minister Wolfgang Schauble. Noonan will meet with his Eurozone counterparts today where more discussions on lowering Ireland's interest rate on European borrowings will again dominate the agenda.
Michael Noonan speaks with German finance minister Wolfgang Schauble. Noonan will meet with his Eurozone counterparts today where more discussions on lowering Ireland's interest rate on European borrowings will again dominate the agenda.
Image: Geert Vanden Wijngaert/AP

THE IRISH GOVERNMENT has insisted that it will not agree any deal allowing the national rate of corporation tax to be increased, in exchange for an improved interest rate on its bailout package from the EU.

It is thought, however, that the government would be willing to sign up to new pre-agreed rules that would specifically limit the amount of borrowing the government can knowingly engage in, stopping its national debt burden from spiralling beyond control.

The Irish Times reports that a number of cabinet ministers had all insisted Ireland would remain steadfast in its safeguarding of the corporate tax rate – though some said the legally binding limit on borrowing, a policy pushed by Germany’s chancellor Angela Merkel, could be agreed to.

Such a move would be less palatable to the other Eurozone nations, however – in particular France and Austria – who would rather see Ireland give up what is seen as one of its major advantages in attracting global investment.

Similar news is reported by Bloomberg and the Wall Street Journal – the latter quoting European minister Lucinda Creighton when she said the government was committed to tackling the current bailout package, which in Ireland’s perspective was “not sustainable”.

The government could also agree to abide by the proposals for a ‘Common Consolidated Corporate Tax Base’ – a system which would allow individual states to retain the right to set their own levels of corporation tax, but offers a standardised formula to calculate the tax payable by companies operating in more than one state.

Negotiations on Ireland’s bailout rate are likely to continue today when finance minister Michael Noonan meets with his Eurozone equivalents at a formal meeting to expand the European Financial Stability Facility revamped into a new ‘European Stability Fund’.

Other discussions will continue later in the week at a full meeting of the European Council – when Enda Kenny is reportedly set to announce burden-sharing measures, a move which might prompt European leaders to look more kindly on Ireland for fear that their own bondholders may anticipate an organised default.

That revamp will also see the fund, which is currently financed to the tune of €440bn, being expanded – allowing a greater proportion of its cash to be lent out.

Of the €440bn in the current facility, only about €250bn can be lent out without the EFSF losing its triple-A rating. The new facility would boost the reserves to around €700bn, thus allowing a full €440bn to be issued.

Given the current precarious nature of Portugal’s funding options, and the chance that it may need access to European funding, it is seen as crucial that the fund be expanded: the current lending capacity would not be enough to cover both Spain and Portugal, should both require assistance.

Noonan seeks alliance of EU states in support of Ireland’s corporate tax stance >

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Gavan Reilly

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