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The EU wants concessions out of Ireland

15 March 2011

7:03 PM

15 March 2011

7:03 PM

The mood in Dublin is febrile, despite the gloom of 14 percent unemployment. Everyone has advice for Enda Kenny on how to revive the
Celtic Tiger. This morning, 17 prominent businessmen and public figures submitted A Blueprint for Ireland’s Recovery to the Department of the Taoiseach. The Irish Times reports that the authors propose deeper spending cuts and greater
efficiency in the public sector. This is a different approach from influential Irish Economist Colm McCarthy, who argued on Sunday that ‘fiscal stringency is not enough to resolve
the crisis’ because the banking restructure (contained within the IMF/EU bailout) is ‘impractical’.

Enda Kenny, it seems, agrees with McCarthy, which is why he went to Brussels last week to renegotiate the 5.7 percent interest rate on the loan; although the gentle crescendo of Irish euroscepticism lends a political dimension to those efforts.

However, so far, so bad for Kenny. He returned to the Dail empty handed and was further embarrassed because the Greeks managed to shave a percentage point off their arrangement, in return
for cutting public sector pay.

More sagacious heads may have been wary of these Greeks bearing gifts; but the EU’s preference reveals the scale of Kenny’s task. The Irish government is still debating the precise
ratio of its spending cuts and tax increases; but there is consensus that corporation
tax and public sector pay must remain very attractive if Ireland is to recover. More pertinently, Kenny stood on a platform of defending Ireland’s current low-tax, high-spend settlement.
Anti-politics is in vogue and he would be foolhardy to renege on those promises.

Meanwhile, the European Union and the eurozone are unequivocal that Ireland will have to make concessions if negotiations are to progress. The Economist’s Charlemagne reports that Hermann van Rompuy has insisted that Ireland offer “constructive engagement on tax
co-ordination", which seems easy enough. The insurmountable object seems to have been Sarkozy and Merkel. Both accept that Ireland cannot harmonise its corporation tax with the European
average; but they still want an increased levy, as well as cuts to the public sector pay settlement. We’re in
this together, Sarkozy in particularly implied.

The next EU summit starts on 24th March. Kenny is playing for time: waiting for the latest round of stress tests on eurzone banks, after
which the EU might be convinced that Ireland is incapable of meeting its current committments. But, equally, perhaps an impasse has already been reached. Quite what all of this means for Britain
and its £2.5bn loan to Ireland remains to be seen.

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