Tuesday, 7 June 2011
Question 24: To ask the Minister for Finance when he expects to secure a reduction in the interest rate on the European element of the loan facility in the EU and IMF agreement; the progress that has been made to date and the obstacles that will prevent achieving the reduction. [14410/11]
The Heads of State or Government of the euro area decided on 11 March last that the "pricing of the EFSF loans should be lowered to better take into account debt sustainability of the recipient countries, while remaining above the funding costs of the facility, with an adequate mark up for risk, and in line with IMF pricing principles" - that is the text of the communique following the meeting. While the rates are, in my opinion, still very high, they have been reduced somewhat for Greece and Portugal. However, the reduction has not yet been applied to Ireland's EU loans. This is because some countries are seeking further concessions from Ireland on corporation tax as a quid pro quo. This was, and remains, the principal obstacle to achieving a reduced interest rate. We have made it clear that this condition is unacceptable.
Since then, the issue of a reduction in the interest rate for Ireland's EU loans has been pursued vigorously by me, by my Department and by other Ministers at European level. I have raised the issue at EU Finance Ministers meetings, most recently at the meeting in May. I have also taken the opportunity to raise it at a recent meeting with the French Finance Minister, Mme Christine Lagarde. I took this opportunity to impress upon Mme Lagarde the importance of the current corporation tax arrangements to the competitiveness and future economic growth of Ireland. In doing so, I stressed the importance of safeguarding the factors that will facilitate the resumption of growth in Ireland.
We also point out in our contacts on this issue that Ireland is living up to its end of the bargain by delivering on all the conditions and targets in the EU-IMF programme by the required deadlines. We have also made clear to our European partners that our success will be their success. To this end, we continue to believe that a swift decision to grant us an interest rate reduction that has been agreed in principle, and from which Greece and Portugal are benefiting already, is in Ireland's and the wider European interest. While, for a variety of reasons, agreement of the interest rate reduction has not been secured, I believe our efforts to date are bringing a better understanding of our position, which is essential to bring about a positive result.
I thank the Minister for his reply. It seems Ireland is being treated very unfairly on this issue. As the Minister acknowledged, the other two countries, Greece and Portugal, are benefiting from a lower interest rate. It is now three months since the Heads of Government at eurogroup level decided in principle there would be an interest rate reduction yet it has not been applied to Ireland.
According to media reports last weekend, approximately €23 billion of our facility has now been drawn down, which would represent over a third of the overall facility and is being levied at the higher interest rate. The Minister previously acknowledged that a 1% interest rate reduction on the European sources of funding under the facility would represent a saving of approximately €450 million a year, which would be very significant. By any objective measure, the elements of the EU-IMF agreement that have been renegotiated to date are very modest and have not resulted in a direct cash saving for the Exchequer. This is one change which would result in a saving and the sooner it happens, the better.
The one element not dealt with in the Minister's reply was when we might expect an outcome to these negotiations. Is the problem still with the French insistence on the corporation tax issue? Is progress being made? When does the Minister expect this to come to a head, one way or another?
The Deputy is familiar with the situation. The European Commission has stated publicly that it is in favour of the reduction in the interest rate applying to Ireland, the IMF has stated publicly, through its acting director, Mr. John Lipsky, that the reduction should apply to Ireland and the OECD has stated that the reduction should apply to Ireland. However, the decision is made at the meeting of 27 member states and there must be unanimity. At present, France has been very vocal in opposing the reduction and Germany is also opposed to the reduction, although it is less vocal.
The French position is that because there is a recommendation to reduce the interest rate in Ireland, a quid pro quo must be given by Ireland - in other words, an additional condition must be added to the memorandum of understanding. The condition the French are seeking is an increase in the 12.5% corporation tax rate for Ireland, which we are refusing point blank. We are also refusing to make any variation on the tax base, although we are prepared to participate with all our other colleagues in the discussion on the paper being produced by the Commission on the CCCTB. We have no problem with a full discussion and we will discuss any issue.
The value of the reduction is being exaggerated and, in my view, too much is being made of this. The Deputy knows how it works with the different funds in that there is eventually a blend of interest rates. The Portuguese got 60 basis points. If Ireland were to get the same as Portugal, it would mean €148 million a year, and if we got what Greece is supposed to have got but may not retain next month, the figure would be just over €200 million. There is no way whatsoever that I will negotiate with anyone in the French Government to concede anything on the Irish corporation tax rate for that amount of money.
The last Government committed to a fiscal adjustment of €6 billion in 2011 - targets we are working to meet - and the commitment for 2012 is €3.6 billion, giving a total of almost €10 billion. Does anybody think we will give away the heart and soul of our industrial strategy for €150 million? This is not real. To those who are opposing us and trying to force us to change our corporation tax rate, I tell them once more today that they have no negotiating position because the amounts of money are so small in regard to the adjustments we are being required to make that we will not concede.
We will be reasonable. If they suggest something we can agree with elsewhere in the programme, we will talk to them. If, for example, they want harder fiscal rules going forward, I am in favour of those anyway and would be prepared to negotiate them. I am prepared to be communitaire and to be European - that is kind of tradition I come from and it is what I believe in. However, I will not be waltzed around by any member state, especially when the gain is so small in contrast to the potential industrial promotion.
As a final point, I note that what is going best in Ireland at present is export-led growth, which is where GDP is growing. It is what is giving us a balance of payments surplus and where the jobs are being created, particularly jobs for bright young people. Does anybody think we will give this away for the sake of a small reduction in interest rates? It is not on.
I welcome the commitment of the Minister and the Government not to trade our corporation tax sovereignty for a reduction in the interest rate. However, a reduction in the interest rate was held up during the election campaign as a prize worth pursuing and one which was deliverable. A 1% reduction on all the EU sources would mean €450 million a year, which is not insignificant and might help to soften the austerity measures being applied. When is the next opportunity to pursue this, is it firmly on the agenda and when does the Minister hope to have an outcome?
I do not believe the Deputy's figures are correct. The concession, or arrangement, is that the reductions for Greece and Portugal did not apply to money already drawn down - only to that going forward. Therefore, the Deputy's figures are much greater than that for the actual available reductions.
This matter is always on the agenda. We have negotiated a position in which we have the support of the IMF, the European Commission, the OECD and, I believe, 25 of the 27 member states. We will continue to push for it because we were promised it and should get it. However, although we are not prepared to give any concession on corporation tax - either on the rate or the base - in exchange for it because it is too important to us, we are prepared to consider suggestions elsewhere in the programme.