This afternoon details have finally emerged about the proposals which France and Germany will table at tomorrow’s European Summit. The list of measures which President Sarkozy and Chancellor Merkel seek are flawed and would cause great damage to Ireland and Europe if implemented.
At the core of their proposals is a dramatic increase in central control of national budget policies, including a common corporation tax base which would immediately cost Ireland billions. On the other hand, the package completely ignores the need for a deep reform of the ECB and policies which have driven countries into bailouts rather than stopping them from being necessary. The proposed financial services tax could decimate the IFSC, particularly with Britain’s determination to opt-out of all new arrangements.
The European debt crisis was not caused by a lack of central control and corporation tax is utterly irrelevant to the issues at hand. The proposals to bring forward and fully-fund the European Stability Mechanism are reasonable, but they cannot stand on their own.
The government should not try and pretend that there is a difference between proposals on corporation tax rates and the tax base. The only independent study of a consolidated and harmonised tax base shows that it would inflict immediate and permanent damage on Ireland – while adding absolutely nothing to Europe’s growth potential.
In March the government amended a proposal on Corporation tax proposed by Fianna Fáil in order to remove a statement of opposition to a common tax base. They refused to explain why at the time.
There is no deal on bank debt or any other matter which could compensate for the impact of signing up to the ‘consolidated and harmonised’ corporation tax base which appears set to be proposed tomorrow.
The fiscal-control treaty that is proposed would entrench flaws in the design of the Euro which its main architect, Jacques Delors criticised so directly this weekend. It removes any ability to implement policies to tackle down-turns and it says that Europe will still have no lender of last resort to protect its sovereign bond market.
These policies have encouraged investors to leave the bond markets, because the risk they are most concerned about is the unwillingness of the ECB or the EU to buy bonds at issuance.
The policy of creating bail-out funds and not supporting bonds at issuance has caused immense damage to Europe during the last year and a half. If it is not addressed now there may be a short-term rally, but the long-term dynamic will remain unchanged.
The Taoiseach has still refused to circulate any statement of his views before this summit. He has talked in escalating circles of generalities but failed to say exactly what Ireland’s negotiating position is.
This Franco/German proposal is flawed and damaging. It offends against the core principles of solidarity and mutual respect which built up Europe. Ireland must not agree to it.
It seems incredible that the details of this letter and these proposals would not have been known to the Taoiseach. That national legislators have had to learn about it from a leak to a newspaper, when we have had three full days of debate in the Dáil this week, speaks volumes about the Taoiseach’s approach to this issue and his respect for the national parliament. One month ago I wrote to the Taoiseach and asked him to engage with other political leaders to seek a unified national approach to this crisis. He refused.
A link to the proposals of Chancellor Merkel and President Sarkozy is below: