Sometimes you have to wonder if the rest of Europe understands the fragility of Ireland‘s economy.
Do the Germans and French not understand that there is a prospect of zero growth in the economy in the next three years and that forcing multinationals out of the country could finish Ireland off altogether?
Their constant attacks on Ireland’s low corporation tax rate have even got on the nerves of Ryanair’s Michael O’Leary, who has warned that any increase will jeopardise the country’s ability to pay off its debts.
Figures out on Tuesday showed a surprise rise in unemployment. Yet Ireland swiftly came under attack again for its low corporation tax of 12.5%, as if this was any part of a fix for the challenging times ahead.
German finance minister Wolfgang Schäuble said US treasury secretary Timothy Geithner had complained that too many American companies were investing in Ireland for tax purposes.
According to Arthur Beesley, the Irish Times’s Europe correspondent, Schäuble did not elaborate, but told reporters at an EU finance ministers’ meeting that Ireland’s 12.5% corporate tax rate “can’t stay like this”.
Solidarity was not a one-way street, he added. Referring to corporation tax, he said “if Ireland wants something additional from us, then we can raise that issue”.
But what he didn’t say was that Americans express gripes about Ireland’s tax regime for other reasons – their own regime is one of the most uncompetitive in the world.
This week the Tax Foundation found that America was soon going to have the highest corporation tax in the world, overtaking Japan with a headline rate of almost 40%.
But that too is irrelevant. Ireland is now, says one tax accountant familiar with multi-national tax structures, the “Delaware of Europe” because it enables companies to shuffle profits around a network of subsidiaries and reduce tax obligations as a result.
Ireland desperately needs the multinationals
As I said in a post earlier this week, multinationals don’t pay anything like 12.5% tax. Google, one of Ireland’s biggest employers, pays less than 3%.
Google has in effect reduced its corporate tax bill to 2.4%, saving $3.1bn (£2bn) in the past three years. It would have paid 35% in the US. The process is entirely legal and Google is far from alone in exploiting it: more than 400 multinationals are now established in Ireland.
But to lose any of them now would be a hammer blow to the Irish economy. They are responsible for about one third of the country’s corporate tax take and responsible for employing around 100,000 locals.
And Ireland desperately needs these jobs.
Any hope that the economy had stopped deteriorating was dashed on Tuesday with new figures showing unemployment in Ireland at 14.7% – the highest rate in 17 years.
The Quarterly National Household Survey figures are a dreadful reminder of the challenging times Ireland lives in – nobody expected the unemployment figures to rise beyond the 13.5% at the end of last year. If anything, the figures were expected to fall, taking into account emigration of about 1,000 people a week.
Young people are being hit hardest. The number of teenagers between 15 and 19 in work has fallen by almost 60% year-on-year while the number of employed in the 20- to 24-year-old age bracket fell by almost half.
The picture is worst for the long-term unemployed. For the first time, the number of those unemployed for more than a year was higher than the number of people who were out of work for less than a year.
Separate figures released by the Organisation for Economic Co-operation and Development (OECD) showed that unemployment rate in Ireland is now the second highest in Europe, after Spain and ahead of Slovakia, Estonia and Greece. The UK incidentally is 12th, between Sweden and Denmark.
On Tuesday night former head of the National Treasury Management Agency, Michael Somers, painted a bleak picture of Ireland’s future. “The awful thing is there are figures out there that show no growth for the next three years … the problem is what happens after that.” Given the tax rises and pay cuts in last year’s budget, “you wonder how are we going to get out of this mess … we are in a downward spiral,” he told RTE.
The next two weeks will be critical for Ireland as Europe edges closer to finalising its plan for an expanded bailout fund.
For Enda Kenny, the bleaker the picture Somers paints of Ireland the better, as it all chimes with Fine Gael’s new mantra that the bailout as currently configured is “unsustainable”.
In other words, the closer we get to default, the stronger the chance of a renegotiation.
The IMF’s Ajai Chopra, who has returned to Dublin, will certainly get a flavour of the challenges ahead today when he is briefed on the bank stress tests. These are expected to show a further black hole in AIB.
Back in Europe, Ireland got some much-needed support on Tuesday from Luxembourg’s prime minister, Jean-Claude Juncker, who said he did not think a link should be made between the corporate tax rate and more lenient bailout terms.
“As the prime minister of Luxembourg, I don’t like this link between the corporation tax issue and the so-called Irish package,” he told the Irish Independent after a meeting in Brussels.
In a swipe at France and Germany he added: “Some governments obviously find some pleasure in torturing Ireland inside and outside [EU] meetings.
Any premier of Luxembourg, which operates on the most tax-friendly regimes in Europe, would say that. But right now Ireland will take comfort from wherever it can.