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Contagion Rides to the Rescue

Posted on: March 27th, 2011

LESS than three years ago, I was sitting in an RTE studio opposite Micheal Martin, then Minister for Foreign Affairs. A referendum on the Lisbon Treaty was only days away.

Micheal was dismissive of my fears about the dangers to Ireland’s 12.5 per cent corporate tax rate. Like many others, I was afraid that the passage of the Lisbon Treaty would be followed by a Franco-German assault on our economy’s lifeblood, our low tax rate.

Anyone who had bothered to read Le Monde or study other French media outlets at the time would have seen clear evidence that French President Nicolas Sarkozy was holding his fire until the Treaty was passed in Ireland. The signs were ominous that once he took over the European presidency — an imminent event — he would launch an assault on our corporate tax regime.

Micheal pooh-poohed the danger. Tax harmonisation was our business. It was not a matter for Lisbon, Sarky or Merkel. This was a red herring, a scare story.

He left me with a bloody nose. I lost the argument.

A few days later Micheal’s Lisbon Treaty was beaten.

The defeat of the Lisbon Treaty put a stop to Nicolas’ gallop towards tax harmonisation. Undaunted, a couple of weeks later, as president of Europe, he paid a rather regal visit to Dublin to put us right on several points. Doubters like me were given a private audience with the little man in the French Embassy on Dublin’s Ailesbury Road.

It was a buttering-up exercised, bolstered by French pastries and Earl Grey tea in china cups. Nicolas made soothing noises. Reassurances were given to us on corporate tax.

Last week the French Embassy insisted that no transcripts of this meeting had been kept. It did not matter. Nicolas had done the trick, providing ammo for Micheal and others in their drive to smooth the path for a second Lisbon Referendum.

Armed with these crumbs from the president’s table, Micheal returned to the Irish people in search of a reversed verdict. I was among many who voted ‘Yes’ in the second poll, reassured that there was now no danger to our corporate tax.

Our ‘No’ vote, so reluctantly cast in the first instance to save our corporate tax, had not been in vain.

We believed we had won a concession, even a victory. The 12.5 per cent tax rate was confirmed as sacrosanct. It was a lucky escape — but all credit to Minister Micheal for extracting the necessary legal guarantees from Europe.

So last week it was a trifle unnerving to hear Micheal ringing the alarm bells. Only a wet week out of office, his top priority in the Dail was a stout defence of our corporate tax regime. He seized the first opportunity — Fianna Fail’s private members’ time — to circle the wagons around our multinational companies. Thrust into opposition, he perceived a sudden threat to the Irish economy: corporate tax was on the line.

Micheal was militant. Not only did he refuse to indulge French fantasies about a higher tax rate for Ireland, he insisted that Taoiseach Enda Kenny should also boycott proposed talks about the tax base, a milder reform that smells of continental guile. He seems to agree with Enda that such a circuitous approach is merely a back door to a forced hike in Ireland’s 12.5 per cent rate.

Micheal’s rhetoric was more robust than his diplomatic language when he was a minister. He referred to a “small number of people in certain countries who have become obsessed with our corporation tax rate”.

Now, to whom could the deposed foreign minister be referring? He must have become familiar with the foibles of Nicolas and Angela during his long stint in Iveagh House. Their irritation with Ireland’s benign regime must have entered his consciousness a little earlier than last Wednesday when he even dubbed these politicians’ obsessions as a “fetish”. He talked of “deep antipathy” towards our tax regime from anonymous nations.

I wish he had told us about all this back at the time of Lisbon 1.

Micheal’s timing appeared good. The debate ended on Wednesday night, just before the summit in Brussels, a meeting billed as the D-Day for Ireland on corporate tax.

Suddenly divine intervention came through: news broke that Portugal was joining us in the European doghouse. The Portuguese government evaporated almost at the same time as the Dail was voting on Micheal’s motion. Political and economic meltdown in Portugal was a comfort for Ireland. Portugal was on the verge of an Irish-style bailout. There was safety in numbers. Long live contagion.

The PIGS (Portugal, Ireland, Greece and Spain) are falling like ninepins. Three down, one to go. There is nothing more comforting than sharing a downfall with others — especially with the mightier Portugal. Next stop, Spain. And then, what about the even mightier France?

Speak softly. We must not wish any ill on noble Nicolas.

Suddenly, kicking Enda around is no longer the favoured sport on the playing fields of Europe. Indeed, our corporate tax is off the pitch. So is the minor matter of Ireland’s interest rate on the bailout loan. That game will be played in June.

Ireland’s corporate tax is important to Ireland, but when the proverbial hits the fan, it is small beer to Europe, as is the punitive interest rate we are paying. It is merely a useful political target for Nicolas and Angela.

Contagion is a bigger game.

Portugal’s plight gave cover to Enda’s retreat from previous positions. It stole the main headlines.

Back home, hardly anyone noticed that we have surrendered our demand for burden sharing, nor that we had allowed the interest rate issue to linger. Instead, contagion is only just around the corner. Yippee. It is the only game in town.

The whispered monster is about to be spoken in the corridors of Brussels. The “default” word is no longer confined to the deaf and the dumb. Excuses — such as Thursday’s results of further banking stress tests — for postponing decisions are hardly convincing. Political crises and markets are moving far faster than the official pace of change in Europe. We will soon have to face up to reality: default in Ireland is inevitable.

We cannot afford to repay our banking debts. If we are not compensated by the powerful nations that are protecting those bankers who lent so recklessly to us, we will be forced to take a unilateral decision to default.

The speed of the crisis in the Iberian peninsula ensures that Ireland will not wait until 2013 for a plan that is already tailor-made for the Franco-German agenda.

The fall of Portugal means that we are in good company. Spain is next for the market’s microscope. Followed by Italy, then Belgium. After that the heart of Europe, as the markets take a cut at the Franco-German embrace. France might find itself targeted separately from the mighty Germany.

Suddenly Sarkozy may have bigger fish to fry than Ireland. Our corporate tax issue will melt away in the beckoning furnace. The interest rate we pay will be a footnote. Even contagion has an upside.