April 2011 Archives

In a recent entry Banking Crisis: Help Us or We Default, I suggested that Ireland could introduce a temporary levy on top of its current 12.5% rate for Corporation Profits Tax (CPT) as a quid pro quo for EU/IMF/ECB agreement on restructuring some of its bank bonds and slashing the interest rate applicable to the bailout.

It is apparent that there is substantial resentment within the EU, most notably in Germany and France, about Ireland's low CPT rate. My idea is that an increased rate would help Angela Merkel and Nicolas Sarkozy, Chancellor of Germany and President of France respectively, to "sell" such a deal to their sceptical electorates. 

This entry discusses the Irish CPT issue under the following headings:

1. Importance of Corporation Profts Tax Rate
2. Consequences of Increasing the Rate
3. Threat = Opportunity
4. Stop Kicking the Can

Based on the new Government's approach to the bank bondholders, the only difference between FF and FG appears to be one letter and one month.

Letter published in the Irish Times on 13th April 2011.

It is almost two months since my last entry. In the interval:

• We've had a general election in which the Fianna Fail and Green parties were comprehensively rejected by the electorate in favour of a Fine Gael and Labour Coalition.
• The Moriary Tribunal has reported and concluded that a former Goverment minister had accepted payments from a Irish businessman in return for helping to influence the outcome of a competition to award his company an extremely lucrative mobile phone licence. 
• After over two years of drip feeding bad news and "kicking the can down the road", we are now approaching the endgame in relation to the banking crisis with the production of further stress test results.

This extended entry reviews the banking crisis and EU/IMF/ECB rescue package under the following headings:

1. Depth of the Black Hole
2. Putting the Cost in Context
3. No Moral Hazard for Golden Circles
4. Central Bankers were Asleep
5. Default is Inevitable
6. Irish Taxpayers Rescuing Foreign Banks
7. Ourselves Alone or Kind Strangers
8. Package Deal including CPT.

This entry conclude that in the absence of basic changes to the terms of the rescue package Ireland will be obliged to default. To prevent this outcome, it proposes changes to the package's interest rate, selective restructuring of outstanding bank bonds and temporary concessions on the politically sensitive, Irish corporation profits tax rate.