Euro crisis: “If Portugal asks, we will be ready to intervene…”

To the apparent outrage of some, last night Taoiseach Enda Kenny agreed to defer seeking a conclusion to talks on reducing Ireland’s bail-out interest rate at the two-day EU summit in Brussels.  At the IIEA blog, Karl Whelan argued

After a lot of fighting talk about renegotiation during the recent election campaign, the new Irish leader Enda Kenny probably feels a certain amount of pressure to come home from this summit with a deal on the interest rate. My advice, for what it’s worth, is that Mr. Kenny should not place a high priority on gaining a cut in the interest rate at this point. Indeed, there are a number of reasons why a deal that linked the interest rate on the Irish EU loans to the corporate tax rate would be bad for Ireland and bad for Europe.

The Irish Times’ Arthur Beesley had an interesting report on that particular issue in yesterday’s paper

The EU official said senior European figures made the case to French president Nicolas Sarkozy at the last EU summit that “every country has their sacred cows” and that Ireland’s corporate tax fell into that category.

Nevertheless, France continues to exert pressure on the Government to increase the rate in return for lower bailout interest.

In certain other quarters, however, there are tentative indications that Germany may now be willing to accept something other than a manoeuvre on corporate tax as a quid pro quo.

High-level European officials still see potential for an interest rate deal in the draft text of an agreement which European Council president Herman Van Rompuy proposed at the last summit to Mr Kenny.

A source said the text in question cited a “vague commitment to discuss tax co-ordination” but this proved unacceptable to Mr Kenny. “He could have accepted that,” the source said of the text. “In fact, it was very close.”

The source said, however, that the ongoing scrutiny of the banks has assumed increasing importance in the present debate on Ireland. “We are following the situation very closely.”

The EU leaders at the summit also have other things on their minds.   There’s the resignation of Portuguese Prime Minister Jose Socrates, after Portugal’s parliament rejected his proposed austerity budget, for a start. From the BBC report on the EU summit

Belgian Finance Minister Didier Reynders said that Portugal’s partners were ready to offer their help, if requested.

“I have always thought that it would be useful to organise aid, simply because that allows [Portugal] to pay less interest on its debt while undergoing restructuring, and therefore make fewer demands, sometimes onerous ones, on [its] people,” he said in Brussels on Thursday.

“If Portugal asks, we will be ready to intervene. For that to happen, there will need to be a plan to bring its finances back to better health and a request to unlock European funds.”

A bail-out for Portugal could total about 80bn euros, analysts say.

In a speech to the German parliament (Bundestag) on Wednesday, Chancellor Angela Merkel said it was “regrettable” that Portuguese MPs had rejected the government’s proposed package of spending cuts and tax rises.

Praising Mr Socrates’ efforts as “courageous”, Mrs Merkel said: “What is needed is a consistent path of consolidation and reform. Yesterday showed how difficult this is.”

And, still everyone’s hero, Robert Peston adds

The understandable consensus among European leaders is that it would be pointless negotiating a long term bail out with Portuguese ministers who may not be in office in a few weeks.

That is the lesson for EU leaders of their Irish rescue mission – where they agreed a bailout plan with the previous government only to see the new government try to unpick it.

With a Portuguese general election looming in a few weeks, far better to negotiate the rescue loans – and corresponding measures to strengthen Portugal’s banks and public-sector finances – after a new government has been chosen by Portugal’s people.

So, as is the way with the eurozone’s fiscal and banking disease, each new shock is met with aspirin and sticking plaster, rather than substantial major treatment and rehabilitation. [added emphasis]

And how is the collective mood now?

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