Irish Prime Minister Says Budget Plans Are Already in Place
As Irish and European officials engaged in tense talks over the weekend on terms of a multibillion dollar rescue package, Ireland’s Prime Minister Brian Cowen asserted that the country’s low corporate tax rate and four-year plan to reduce the budget would not be substantially changed.
“Unlike other countries, we have already made our adjustments,” Mr. Cowen said on Saturday, speaking to a small group of reporters and voters on this desolate island of 500 or so people just off the northern coast of Ireland. “Our tax rate is 12.5 percent and it is transparent and it is a matter for the national government.”
However, in at a NATO meeting in Lisbon, President Nicolas Sarkozy of France said he could not imagine that Ireland wouldn’t choose to raise its corporate tax rate. But he said that would not be a condition of any bailout.
Mr. Cowen is facing stiff political pressure from opposing parties who say that his decision in 2008 to guarantee bank liabilities jeopardized the country’s fiscal future. Campaigning for the local Fianna Fail candidate in an upcoming election, Mr. Cowen flew here Friday night while his finance minister Brian Lenihan led negotiations with the International Monetary Fund and the European Commission back in Dublin.
Mr. Cowen also said the current interest rates of 8 percent demanded by buyers of Irish government bonds were “prohibitive,” and indicated that as long as they remained that high Ireland could not borrow more from the financial markets.
For the 250 or so voters on this windswept island, the main issue is fishing; they want to change the Brussels-based restrictions that prevent them from catching more salmon from the surrounding waters.
Despite being a Fianna Fail stronghold, Mr. Cowen was met at the ferry dock by a handful of dour-looking fishermen and their sad-eyed children who held up signs that said, “Please let my Daddy fish.”
After huddling with a delegation of petitioners, in addition to the local priest, Mr. Cowen took questions from journalists who wondered why he was spending his Saturday here and not in Dublin as Ireland’s financial future was being decided.
Mr. Cowen batted away the notion that he was missing important state business, and said he would be returning to Dublin Sunday, where he would head a cabinet meeting that would deal with the final details of the country’s four-year plan to bring the deficit down from the current 32 percent of gross domestic product to 3 percent.
“It is important to meet the people,” he said, as he nodded toward a small group of weather-beaten locals who were watching from the side. “There are dire issues here regarding salmon-fishing, and it is my job to have a good discussion with them about this.”
Mr. Cowen was also insistent that no form of debt restructuring would be on the table — despite a growing cry in Ireland and abroad that the bondholders who financed the boom that has brought this country to its knees share some of the pain too.
“Under Irish law, senior bondholders rank pari passu with depositors,” Mr. Cowen said, meaning they each had equal rights. His government has been roundly criticized for a blanket guarantee of the country’s banks and bondholders in 2008. Irish bank debts are now estimated at around 70 billion euros, almost one half the country’s output.
Mr. Cowen would not go into specifics regarding the talks, but he said there could be no deal struck before the cabinet meeting on Sunday.
He did say that some form of a “contingency fund” could be the answer — underlining a broad view in the government that what is needed to restore confidence in Ireland’s finances is the establishment of a fund big enough that it could be used to help operate the government and at the same time provide capital to its banks.
Analysts at Barclays Capital estimate that banks would need anywhere from 22 to 37 billion euros and that the government would need 63 billion euros if it were to remain out of the bond market through 2013.
Technical discussions on a bailout continued Saturday in Dublin among a team of officials from the European Commission, the European Central Bank and the International Monetary Fund. European Union officials say they are testing the credibility of Ireland’s plans.
“What we have to do is assess that the measures really enable Ireland to meet the target in 2014, sector by sector,” said one European Union official, speaking on condition of anonymity because he was not authorized to speak publicly.
For Father John Joe Duffy, Arranmore Island’s parish priest and its de facto town elder, such matters were less important than how future and certain budget cuts would affect his island — which is in many ways dependent on government funds.
“The government has been good to our island,” he said. “And we understand there have to be cuts — we are just asking for a few concessions.”
Stephen Castle contributed reporting from London.