Ireland: The big uncertainties
Robert Peston, BBC
15:38 UK time, Thursday, 18 November 2010
It would be far cheaper for the Irish government if markets were to be reassured by the existence of a substantial borrowing facility – because Ireland would only pay the full 5% interest rate on drawn down loans.
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(I)t is the perceived weakness of Ireland’s bloated, lossmaking banks that is the fundamental problem.That said, is it the case that these hobbled banks would be able to borrow from commercial lenders again, and would become less dependent on the European Central Bank for funds, if all that happened was that a few more tens of billions of euros was injected into them as new capital, as additional protection against losses?
Or would investors and banks still be wary of lending to these banks, if they felt that the entity standing behind the banks – the Irish state – remained a credit of dubious worth?
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(T)he other huge unknown is over the other strings and conditions that would be attached to the loans or borrowing facilities.In particular, will Germany get its way and force the Irish government to raise its 12.5% corporate tax rate, which the German government has long seen as unfair tax competition, as a de facto bribe to big international companies to settle in Dublin?
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Curiously the Irish government’s preferred tax-raising measure, I am told by officials, is to increase the number of citizens paying income tax, by lowering the income threshold at which income tax is payable.I’m not sure whether the economics of keeping corporation tax low while raising more from low-income families quite works. But the politics is certainly very intriguing.
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