IRELAND’S newly elected Prime Minister Enda Kenny is facing an assault on Ireland’s sacrosanct 12.5 per cent corporate tax rate by Eurozone leaders, who declared on Friday that they would move to enforce a uniform corporate tax regime across the region.
In negotiations intended to resolve the sovereign debt crisis, Eurozone ministers refused to lower the punitive interest rates on Ireland’s €85bn bailout if it does not bring its tax regime into line with the Eurozone norm of around 24 per cent.
The European Council declared that the European Commission “intends to present a legislative proposal on a common consolidated corporate tax”, which could effectively rule Ireland’s lower tax rate illegal.
The Council’s anti-Irish stance was underscored by its decision to lower the interest rate Greece must pay on its bailout by one per cent, but to refuse Ireland similar relief.
The pact agreed on Friday also extended maturity on Greece’s bailout debt to 7.5 years and, following the vote in favour of a Tobin tax by the EU Parliament last week, promised to develop a regional financial transaction tax despite warnings that such it could devastate European trade.
In a major German concession, the pact also boosted the main Eurozone bailout fund’s ability to lend out up to its full €440bn (£382bn) capacity by guaranteeing more of its debt. The bailout fund was also given power to intervene in primary sovereign debt markets in exceptional circumstances.
The latter move will be welcomed by the European Central Bank, which has been single-handedly propping up Eurozone sovereign debt markets over recent months.
AT A GLANCE | EUROZONE PACT
● Context: Eurozone leaders met on Friday to thrash out a solution to the region’s sovereign debt crisis. The resulting pact exceeded expectations, but markets are still awaiting further details due after another summit on 24 March.
● Bailout fund: The pact signed on Friday extended the ability of the European Financial Stability Facility (EFSF) to lend out all of its €440bn funds in order to bail out sovereigns. This effectively boosts the fund’s size, since it was before limited by Germany’s refusal to guarantee its debt.
● Bond market purchases: Euro leaders also gave the EFSF permission to buy sovereign debt “with strict conditionality”. The ECB had been pushing for its bond-purchasing duties to be taken over by the region’s bailout fund.
● Relief for Greece: The interest rate on Greece’s €110bn bailout was cut by one per cent and its maturity extended to 7.5 years in a bid to avoid a default.
● Fiscal rules: Ministers also agreed that Eurozone states should implement a legally binding cap on their debt, though did not specify what form this should take.
● Common tax rates: In an attack on Ireland’s low corporate tax, the pact promised to legislate for a common regional rate.