Ireland accepts its fate and takes EU bail-out

While Ireland’s government has finally accepted that it will take a bail-out from the European Union (EU) and the International Monetary Fund (IMF), the terms attached are not clear.

Even before Ireland agreed to accept a rescue, a dispute began about the conditions that should be imposed if it did tap its international partners for funds.

France and Germany think Ireland should raise its corporate tax rates in exchange for accepting any funding package that will include a large contribution from them.

The corporate tax rate is 12.5% in Ireland, making it an attractive place to do business for many companies compared with other European countries.

Ireland has come out fighting in the face of this perceived threat. Deputy prime minister Mary Coughlan said that the country’s low corporation tax rate is ‘non-negotiable.’

Her comment came in response to an indication from the French finance minister Christine Lagarde that Ireland’s corporation tax rate will have to be raised.

EU officials indicate that the bail-out will consist of a maximum £77bn spread over three years. General funding of £48bn will be paid in instalments over the period, while a further £21bn to £29bn will be earmarked directly for the beleaguered bank sector. 

Ireland’s first port of call is likely to be the European Financial Stability Mechanism, which can lend up to €60bn (£71bn). This fund is available to all EU countries, so a contribution will be made by Britain.

Then there is the European Financial Stability Facility (EFSF), a mechanism set up by the eurozone countries worth €440bn.

On top of this, the IMF has agreed to provide up to 50% of the amount stumped up by the European funds.

Ireland is the second country this year to utilise the European Union’s bail-out mechanism. Greece took €110bn in May.

But with Portugal also now talked of as a highly probable bail-out recipient, how much money could be available if the eurozone economic situation turns down again is becoming another source of worry.

Portugal is a relatively small EU member, but after that the size of the countries that could potentially require a rescue package increases significantly.

Spain, or possibly even Italy, are seen as the most vulnerable. If they were to falter, the amount of funds available could become a pressing issue.

It would also explain why the German finance minister said the Irish package was not about helping one country but about defending a common currency.