Ireland has already lost part of its national sovereignty and will embrace the European Union’s (EU’s) offer of a multibillion- euro rescue plan by the end of January, TASC, a leading economic think-tank in Dublin, has predicted.
The policy institute said the international bond markets were already dictating Irish fiscal policy during the present crisis by taking control out of the hands of Irish taxpayers and voters.
Tom McDonnell, a senior economic policy analyst at TASC, said the odds were stacked in favour of Ireland taking up the bail-out by early next year.
“We have already pumped €50-billion into the banking system, €25-billion of which went into the notorious Anglo Irish Bank and the rest into the other Irish banks. It is likely that figure will rise as more money is needed to shore up the Irish banking system.
Our overall GDP is around €157-billion so it is obvious you can’t cover all those costs on your own. The European Central Bank is going to be our lender of last resort,” he said.
McDonnell believes that the Irish government will wait to see what impact next month’s budget, in which €6-billion cuts in public spending will be announced.
Fears
One of the biggest fears in Dublin is that an EU bail-out might threaten a key driver of Ireland’s economic boom from the late 1990s — the republic still enjoys one of the lowest capital taxation rates in the developed world at just 12,5%. The rate has attracted numerous high-tech multinational corporations to Ireland.
The sector continues to generate jobs with 7 000 created in 2010 out of 67 foreign direct investment projects. Overall, 70 of Fortune’s top 100 global corporations have their European headquarters in Ireland.
Mike Smyth, an economist who sits as an adviser on the EU’s economic and social committee in Brussels, emphasised that protecting this low capital taxation is of paramount importance to the Irish government.
“One of the main reasons the Irish government is reluctant to accept an EU bail-out is that the quid pro quo for billions of European aid would be the revision of Ireland’s low capital tax rates.
“They fear that the EU will ask the Irish to review their low taxation rates for corporations. Even if news broke out that there would have to be a revision, that could be enough to spook chief executives all around the world who were thinking of investing in the republic,” he said.
Impacts on national sovereignty
Smyth said the removal of Ireland’s right to impose its own capital taxation rate would be a blow to the country’s overall national sovereignty.
The sense of crisis has been as urgent in Dublin as it has been in Brussels where eurozone finance ministers were discussing the republic’s dire financial situation. Newspaper billboards screamed: “Only 48 hours to save the euro.”
Jim Power, a senior economist of the Irish Financial Services Centre, said it was now “inevitable” that the government would seek a bail-out. Power predicted that this hand-out would be “dressed up” as a bank rescue plan. Irish banks need further recapitalisation to the tune of more than €40-billion.
The massive cost of saving the Irish banking system has pushed national debt to an unprecedented 32% of the republic’s GDP. The banks failed because during the Celtic Tiger boom they doled out billions to builders and developers on the promise that Irish property prices would continue to soar.
With the credit crunch and recession those prices collapsed leaving the banks with enormous debts.
As Brian Lenihan, the finance minister, beat a path to Brussels to persuade fellow Europeans that they can handle this crisis without surrendering sovereignty, an Irish government report revealed the existence of more than 2 800 so-called “ghost estates” across the country.
These are private housing developments built during the bank-fuelled property boom that now lie empty, areas of desolation and economic loss, the most potent symbols arguably of Ireland’s fall from Celtic Tiger prosperity to a nation going with its begging bowl to its European partners for a multibillion bail-out. — Guardian News & Media 2010