Ierland weigert vennootschapsbelasting te verlagen, Portugal wil einde aan 'domino-effect' van eurocrisis (en)
EUOBSERVER / BRUSSELS - Irish Prime Minister Enda Kenny i has said the "Gallic spat" he had with his French counterpart at a meeting earlier this month is over but was bullish on maintaining Ireland's low corporate tax rate - the source of the original dispute.
"The Gallic spat we had the last time has certainly concluded. We shook hands several times during the course of this meeting," Kenny said, referring to the widely-reported falling out with president Nicolas Sarkozy i on 11 March over Ireland's 12.5 percent corporate tax rate, the lowest headline rate in the EU.
The corporate tax rate has emerged as a faultline in discussions on lowering the interest rate (currently at 5.8%) on Dublin's €85bn EU/IMF loan. France and Germany have linked the two issues, considering the corporate rate to be predatory.
Ireland had been hoping for some sort of concession on the interest rate at this summit in return for more placatory talk on harmonising the tax system in the EU - a European Commission proposal (CCCTB) on making filing tax returns for companies in the EU easier.
However, the potential political leverage of manuoeuvre has been lost amid growing worries about the state of Irish banks.
Stress tests to be concluded next Thursday are meant to ease market fears. But some figures have predicted that the country's banks may be in a worse state than previously thought which could trigger a much higher-than-expected bail-out bill.
The current EU-IMF bail-out is to counter bad debt. The new bail-out would be to give day-to-day cash to the banks.
In a phone call with EU council president Herman Van Rompuy i ahead of the summit, Kenny agreed that there would be no discussions on reducing the interest rate on the €85 billion loan until the result of the stress tests are clear.
The issue will now be dealt with by EU finance ministers, with the first meeting in two week's time.
Kenny reiterated that he is prepared to "discuss" the commission's paper on harmonising the tax system but he maintains a "very healthy scepticism" about the proposal.
This is a softening of previous language when Kenny said it would be tantamount to tax harmonisation through the back door. However, his stance on the corporate tax rate remained the same after the two-day meeting in Brussels.
"We are quite prepared once we get the clarity of the bank stress test to look at what we have to do but that does not include corporate tax rate."
Hungarian presidency also anxious about tax harmonisation
One of the more surprising outcomes has been Hungary's resistance to signing on to the euro-plus-pact despite the country currently holding the EU's six-month rotating presidency.
Orban i has stressed that his opposition to joining the euro-plus-pact lies with its proposals around tax policy, noting that a number of other countries also have problems with a CCCTB, including Lithuania, Slovakia, Cyprus, Malta and the UK.
According to Hungarian diplomats, within the bloc there are two perspectives on the language in the pact. The first is that the wording is sufficiently vague that they do not believe anything serious will come of it.
The second, to which Budapest subscribes, is that both Sarkozy and Van Rompuy have said within discussions that they are perfectly serious and that countries that sign on will have to live up to commitments in this regard.
One diplomat reported that Orban has always taken Sarkozy very seriously and so is taking him at his word.
There are also powerful domestic political reasons for the Hungarian prime minister to resist pressure to join.
An important pillar of Orban's government strategy has been the delivery of tax reductions and an overhaul of the tax system. He aims to make the country the most 'tax-competitive' in the region, the Ireland of the east.
Reportedly, he has also been impressed with how many Irish people have rallied behind Dublin's refusal to countenance a lower corporate tax rate as a symbol of Ireland's sovereignty and hopes that fighting a similar 'national battle' will deliver similar approval in the country where nationalist politics are on the ascendant.
However, in refusing to sign on to the pact, Orban has crossed something of a Rubicon in the country's relations with the EU. Since joining the bloc, Budapest has always been frightened of a two-tier Europe and worked hard to stay at the heart of EU decision-making.
This is the first time that Hungary has decided not to sign on to new integration measures.
Fresh measures announced by four states
Meanwhile, fresh cuts and restructuring were announced by a series of countries who wished to "go beyond" that which has been agreed within the pact in principle, outlining specifically what they intend to do.
"A number of colleagues already announced this morning their concrete commitments under the pact," European Council President Herman Van Rompuy told reporters at the end of the summit. "They are: Spain, France, Belgium and Germany."
It is thought that Slovakia was also preparing further measures.
But eyes were in particular cast in the direction of Madrid to see what new moves will be enacted to stave off contagion from Portugal, which is widely expected to become the third country to apply for a bail-out.
Spanish Prime Minister Jose Luis Rodriguez Zapatero i told reporters he had already spoken to trade unions about the new measures and is set to discuss the matter with employers on Saturday and subsequently other political parties.
Included amongst the moves will be an adaptation of rules relating to collective bargaining, a "rigorous" review of government decision-making regarding competitiveness that will be presented to the EU Council of Ministers on 1 April, and a widening of access to vocational education with an aim to boosting productivity.
Zapatero said that as a result of existing restructuring and cuts as well as the fresh measures, "We have set the conditions to ensure that the situation in Portugal will not deliver any contagion effect to Spain."
Separately, Portugal's caretaker prime minister, Jose Socrates i said that he does not want to see Lisbon lose sovereignty over decision-making the way that Athens and Dublin have as a result of their bail-outs.
"I have seen what happened to Greece and Ireland and do not want the same happening to my country. Portugal will manage on its own, it will not require a bail-out," he said.
"This domino of countries asking for a bail-out one after the other has to end. The ball stops here, with Portugal."