terça-feira, novembro 23, 2010

A bóia de salvação da Irlanda 
The Irish bail-out 

The EU and the IMF have come to an agreement with Ireland to provide Dublin with between €80 and €90 billion worth of loans. The bailout will be conditioned on Ireland pushing through a budget deficit reduction plan that will seek to bring the budget deficit under 3% of GDP as mandated by the Eurozone fiscal rules.
The terms of the bailout deal are still being revealed but what seems to be clear at this point is that the Irish low corporate tax rate will remain the same. At 12.5% the Irish corporate tax rate is one of the lowest in Europe and has really been the point of contention between Ireland and its larger EU member states. Countries like France have for long time focused on the Irish corporate tax rate in the argued that it gives Dublin an unfair competitive advantage over continental economies and that Ireland has been able to attract investors into Ireland with it’s low corporate rate. However behind this criticism is also a perception in Paris but also in Berlin that the low corporate tax rate has allowed Ireland to also be independent and to be independent-minded, however Dublin is fully funded until mid-2011 and therefore it felt that it was able to protect its corporate tax rate in the negotiations for the bailout right now, it felt it had an upper hand so to say.
What has happened now is that Germany seems to have withdrawn the corporate tax rate as one of the conditions for the bailout and has therefore allowed Ireland to keep it for the time being. Germany and France will take a wait-and-see approach with Ireland on this thorny issue and will wait for Ireland to slip up on the terms of its bailout bringing up the corporate tax rate perhaps at some later point in the future.
For Germany the bailout is another opportunity. First it allows Berlin to illustrates to the markets the effectiveness of the European Financial Stability Fund the EFSF which has about €440 billion plus the IMF money that brings it up to €750 billion. Now the fund was specifically designed to bail out Ireland, Portugal and Spain if the need arose. Now Ireland is falling down which means that Portugal could very will be next but the Portuguese needs would not be anymore to those of Ireland and Greece. And therefore the FSF has more than enough to handle both Ireland and Portugal however if Madrid also taps the EFSF the euro zone and Berlin may soon find themselves without any more ammunition in their clip to deal with further crises.
Ultimately Germany does not feel that the current crisis is one of existential nature. On one hand the uncertainty about the Eurozone and its’ markets means that the Euro is trading lower which helps German exports immensely. Furthermore Germany is using the opportunity of the crisis to redesign the European Union and its institutions and especially Eurozone fiscal rules and enforcement mechanisms of those rules. The real test for Eurozone therefore is not the panic level in Madrid or Lisbon or Dublin rather to what extent are the policymakers in Berlin concerned.
This report  is republished in this blog duly authorized by www.Stratfor.com

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