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Merkel and Sarkozy not happy with Irish stance

ARTHUR BEESLEY, European Correspondent, in Brussels

GERMAN CHANCELLOR Angela Merkel and French president Nicolas Sarkozy made clear their dissatisfaction with Taoiseach Enda Kenny’s stance on corporate tax as euro leaders agreed to widen the remit of their bailout fund.

Dr Merkel and Mr Sarkozy indicated that they still want Mr Kenny to yield key concessions on the tax before they agree to lower the interest rate on Ireland’s rescue loans.

European Council president Herman Van Rompuy said euro zone leaders asked for “constructive engagement” from Ireland on tax co-ordination. “They haven’t met all the conditions, so can’t have reduced interest rates.”

On the table is a 1 percentage point reduction in the 3 per cent “surcharge” Ireland pays on the loans, but only in return for a quid pro quo.

Dr Merkel said it was not possible to reach agreement with Mr Kenny. “We weren’t satisfied with what Ireland agreed to today, so the question of lowering interest rates has only been addressed for Greece,” she said.

Mr Sarkozy, who exchanged sharp words with Mr Kenny, said he understood corporate tax was “a very touchy subject” for Ireland, but said euro countries must move towards convergence.

“No one is asking Ireland to have an average rate which is comparable to Europe, but it’s also difficult to ask other countries to bail out Ireland when Ireland is determined to keep the lowest tax on profit in Europe.”

Pointing out that Greece had reduced wages, Mr Sarkozy said all euro countries have had to tighten their belts and take measures to deal with the crisis.

“Ireland is going to have to come to terms with that, but there’s a very clear request from the members of the euro zone that there be at least some gesture.”

The leaders were speaking early on Saturday morning at the end of seven hours of talks on the debt crisis. The euro zone leaders agreed at the meeting to adopt a pact for the euro modelled on Dr Merkel’s heavily contested proposals for a new “competitiveness pact” in the single currency area.

Member states will be obliged to present specific measures they will take to foster competitiveness, employment and sustainable public finances. While the pact makes it clear that the choice of the specific policy actions necessary to achieve its objectives remains each country’s responsibility, it says the development of a common corporate tax base could contribute to fiscal sustainability.

Mr Kenny opposes such a policy. The pact also compels euro zone governments to enshrine in law the fiscal limits set out in the EU stability and growth pact.

“The exact formulation of the rule will also be decided by each country [eg, it could take the form of a debt brake rule related to the primary balance or an expenditure rule], but it should ensure fiscal discipline at both national and sub-national levels.”

The tough talking on Ireland’s corporate tax regime came as euro zone leaders agreed to reduce the interest rate on Greek bailout loans by 1 percentage point and to extend their maturity to 7½ years from three years. Greece reluctantly agreed to embark on a €50 billion privatisation plan in return for the cut.

Euro zone leaders also resolved to increase the effective lending capacity of the European Financial Stability Facility temporary bailout fund to €440 billion from some €250 billion.

In addition, they agreed to give the facility and the future permanent bailout fund powers to intervene in primary debt markets to buy sovereign bonds directly from euro zone countries.

Mr Van Rompuy made it clear that this would be done only in the context of a formal rescue “programme” with the recipient obliged to agree policy “conditionality” in return for aid.