The Irish/French Situation

DJCR

"The European Union is a unique economic and political partnership between 27 European countries.
It has delivered half a century of peace, stability, and prosperity, helped raise living standards, launched a single European currency, and is progressively building a single Europe-wide market in which people, goods, services, and capital move among Member States as freely as within one country".

The above is how the European Union website describes what the EU is.

What we have seen from French petulance over the last few months is that even people as Pro-EU as myself have begun questioning the actual European situation. The European ideal is very hard to argue against except for those who would be ultra-nationalist. Co-operation, peace and raising living standards is obviously a noble cause however, is this still the European aim of today?

What the French have shown, is that unlike the pragmatic and somewhat more realistic Germans, they will continue to "whinge and bitch" (excuse the term), much like a parent trying to cajole their children into action by making them so sick of listening to them that they eventually do it to "shut them up".

This hasn't worked, mainly because it is one promise that the new Irish Government cannot break. France has now moved into threatening Ireland with using their Veto to stop a reduction in the interest rates that must be paid on the bailout loans which will not only hurt Ireland but this in effect will also hurt France and the rest of Europe (Ireland stays poorer for longer, unable to pay for European imports, another loan maybe needed etc etc etc). Also, the fact that France are the only country set to Veto us it isn't very in keeping with the "Political Partnership" set out in the above EU mission Statement.

So, when judgement day passes, and we are stuck with our punitive interest rates where do we go?

Well I for one believe the French are being extreemly hypocritical. With their effective rate being lower than ours anyway (8.2% Vs 11.9%).
This means that there are 12 countries with a lower effective corporate tax than Ireland (Including France).

They want Ireland to raise its corporate tax rate - the main way it attracts companies to Ireland. With an unemployment rate of 14.7% I really don't think that it is an avenue that Ireland should go down. France is only slightly better off with a rate of 9.4% (Not a nice number but better than Ireland all the same). Sarkozy, is trying to pit some of Frances problems on Ireland and because France/Sarko cannot be wrong, everyone else is responsible for their economic problems. This attitude is of course totally understandable for a President with an election coming up, in extreemly difficult economic circumstances and a massive case of small man syndrome. He has made Irelands corporate rate of tax his "Maginot Line" so to speak, he will not yield and we will not pass.

However, France have once again left their flank open..... Ireland will not increase its Corporate tax rate but it does have the option of lowering it. This is of course a little risky from the point of view of the Global recession as:

1) Companies may not be as quick to move in to Ireland as they once were.
2) The word "Default" hangs over Ireland in flashy bright lights.
3) Ireland needs every bit of revenue it can get at the moment, lowering taxes for corporate business may not help balance the books in the short term.
4) Socially in Ireland it my not go down well with the people who have already seen social payments hit the deck.

It would indeed be a courageous move.

Apart from being courageous, there are other reasons as to why Ireland shouldn't lower their corporate tax rate, I suppose a sense of loyalty to Europe and the fact that they do actually believe in the European Ideal. However, between the Punitive Inflation rates, the pressure coming from France should they really keep listening to Europe or feel like they owe the European project anything?

On the jobs front, this week hasn't been that bad for Ireland. Zynga (based in the US), Teleflex Medical (US), Dell (US), Mycroft (US) and Southwestern (Irish) all announcing extra job creating. What I notice however is a distinct lack of European involvement on the job creation front.

With Obama telling Ireland during his visit that it has to get out of this mess by itself through hard work etc, and Europe playing hard ball it looks like Ireland is heading to a place where it hasn't been in a long time... between a rock and a hard place, without money, and very much on its own.

Posted 10/06/2011 http://francevsirelandeconomy.blogspot.com/


At this stage and with pretty much no movement on the issue in the last three weeks does anyone else think we should just threaten to drop our Corporate Tax rate to 9% or lower?

dan_d

Has Sarkozy got an election coming up?It would explain a lot.Personally I don't think we need to do anything other than keep going as we are and ignore the angry muttering from the corner.We're doing what we need to do to get ourselves out of this mess, and if there's an interest rate reduction, well that's a bonus.But other than that, we should just keep going....and by doing so, show Sarkozy's stance up for what it really is.

Scofflaw

I think the EU is currently in something of a bad place as regards unity at the moment. It's not exactly unsurprising, given a decade of untroubled prosperity (real or apparent), followed by a sharp downturn into a massive crisis, to find that old alliances and allegiances are frayed, and commitments to the idea of Europe have weakened. Good times weaken alliances, and applying sudden strain to them when they're weak makes them weaker yet.

As to Ireland - we can't afford not to be committed to Europe, because the alternatives remain exactly as they were, a good deal worse. Yes, the French are being a pain, but they're also ponying up the money to keep our government running - which is both why and how they get to be a pain. It has little to do with the EU, and a lot to do with the financial position we got ourselves into. Were the boot on the other foot, there's no guarantee that we wouldn't be the ones doing the kicking - and without the EU, there would never be any question at all of the boot ever being on Ireland's foot.

Do I expect to see a renewal of commitment to the European ideal? Optimistically, perhaps, but yes. The EU is surprisingly solidly bedded down in Europe's mind - recent (non-UK) articles asking "whither the EU?" have all, I think, started from a position that would have been inconceivable a generation ago, which takes European integration for granted. And maybe, indeed, that's the core of the problem - that we do take European integration for granted. UK eurosceptics largely now seem to accept the EEC - the economic aspects of the EU - as a given, whereas when I was younger, they directed the same level of hatred at the EEC as they now do at the EU.

cordially,
Scofflaw

RichardAnd

dan_d wrote: »

Has Sarkozy got an election coming up?It would explain a lot.Personally I don't think we need to do anything other than keep going as we are and ignore the angry muttering from the corner.We're doing what we need to do to get ourselves out of this mess, and if there's an interest rate reduction, well that's a bonus.But other than that, we should just keep going....and by doing so, show Sarkozy's stance up for what it really is.

Yes he has, there's one next year I believe. His major contender was dominique strauss-kahn who's recent notoriety has thrown up no shortage of conspiracy theories, not too surprising really.

Tora Bora

Perhaps DSK, will reenter the presidential race against Sarkozy. At that point France will have a candidate of infinitely higher credibility and standing than the little guy standing in the shadow of Carla Brunei. :cool:

ei.sdraob

@Scofflaw the French and the Germans have forgotten why the EU (+predecessors) was founded, the nationalist mumbo jumbo and narrative is rather revolting, especially the attitudes and stereotyping of the Greeks at the moment.

After the last depression there was alot of blaming and stereotyping of a race of people, we all know how that ended up :mad:

murphaph

The solution to our problem is to balance our books. Once we can balance our books we can basically default if the rate from our EU "partners" is not reduced to something fair. I imagine as the Greeks move towards a balanced budget that the idea of repaying all that debt will seem not very appealing and the Greeks will default at that stage, having pocketed a load of EU money.

If Sarkozy insists on playing us as a political football then we should be contemplating the same tbh. He's an odious little man in many ways.

later12

murphaph wrote: »

The solution to our problem is to balance our books. Once we can balance our books we can basically default if the rate from our EU "partners" is not reduced to something fair.

This suggestion is gaining far to much credence. Countries like Ecuador can default - no, repudiate - their debt because they have friends like Iran and China, and because of their enormous natural resources. They are guaranteed that a hard default will lock them out of the credit markets - but they can afford not to care about that.

Just because we balance our budget, does not mean we can afford such dismissals. We balance our budget for one year. What happens the next year, should revenues suddenly drop, and consumer confidence drop with it? There is only so much cutting one can do if each cut prompts further erosion of national liquidity or confidence in the solvency of the state. The economy becomes in danger of behaving like a dog chasing its own tail.

I think Ireland probably will technically default on some of its debt, but the notion of defaulting unilaterally (relative to Europe) - and it being okay because we balanced our budget last year - is just not something a line of thinking that deserves to be entertained.

Unless, of course, we become Ecuador.

Scofflaw

ei.sdraob wrote: »

@Scofflaw the French and the Germans have forgotten why the EU (+predecessors) was founded, the nationalist mumbo jumbo and narrative is rather revolting, especially the attitudes and stereotyping of the Greeks at the moment.

After the last depression there was alot of blaming and stereotyping of a race of people, we all know how that ended up :mad:

I don't think they have entirely forgotten, but certainly neither Sarkozy nor Merkel seem to be particularly forward-looking or very aware of the wider context - national politicians rather than statespeople. Some of their lacklustre performance, of course, is the result of situation they find themselves in, but some of the situation they're in is the result of their lacklustre performance.

You know what they say - the first generation earns it, the second keeps it, the third squanders it.

cordially,
Scofflaw

later12

Tora Bora wrote: »

Perhaps DSK, will reenter the presidential race against Sarkozy. At that point France will have a candidate of infinitely higher credibility and standing than the little guy standing in the shadow of Carla Brunei. :cool:

With Tristane Banon filing a complaint against Strauss-Kahn tommorrow - and that itself not being a fresh allegation, it having first been made in 2007 - DSK is not out of any woods yet.

With the latest moves by Tristane Banon, Strauss-Kahn's Presidential campaign is effectively written off. It seems that support for DSK has fallen rapidly, only about 50% of French voters even support his candidacy now.

Tora Bora

later10 wrote: »

With Tristane Banon filing a complaint against Strauss-Kahn tommorrow - and that itself not being a fresh allegation, it having first been made in 2007 - DSK is not out of any woods yet.

With the latest moves by Tristane Banon, Strauss-Kahn's Presidential campaign is effectively written off. It seems that support for DSK has fallen rapidly, only about 50% of French voters even support his candidacy now.

Of course. My comments were tounge in cheek. DSK, is now forever discredited. That said the little runt Sarkozy still pales compared to him. Don't say much for him TBH. In the not too distant future he will be no more than an inconsequential foot note in French history. Mickey Noonan from limerick, just has to bide his time to get the matter sorted.

later12

Well, if someone had said last Friday that Strauss kahn would be next President of France, I wouldn't have bet against him. French media were very much favourable, but the opinion seems to have shifted somewhat with the latest criminal charges.

To get back to the OP, political disagreements of this nature are perfectly acceptable in my opinion. Ireland should be able to fight its corner, not expecting other member states to fawn over it and its needs. Sarkozy is quite right to play politics here.

Scofflaw

later10 wrote: »

Well, if someone had said last Friday that Strauss kahn would be next President of France, I wouldn't have bet against him. French media were very much favourable, but the opinion seems to have shifted somewhat with the latest criminal charges.

To get back to the OP, political disagreements of this nature are perfectly acceptable in my opinion. Ireland should be able to fight its corner, not expecting other member states to fawn over it and its needs. Sarkozy is quite right to play politics here.

Quite true - we may prefer they don't, but that's because they're getting in our way.

cordially,
Scofflaw

keanooo

DJCR wrote: »

So, when judgement day passes, and we are stuck with our punitive interest rates where do we go?

How are the rates "punitive"? We may not like them, but they are less than half what would be available to us on the open market. And there is very little chance (IMO) of us paying the money back anyway...

DJCR

keanooo wrote: »

How are the rates "punitive"? We may not like them, but they are less than half what would be available to us on the open market. And there is very little chance (IMO) of us paying the money back anyway...

Well when everyone in the country has to pay €2,000 to pay for the Interest alone on the loan - I think thats pretty punative.

Scofflaw

DJCR wrote: »

Well when everyone in the country has to pay €2,000 to pay for the Interest alone on the loan - I think thats pretty punative.

That doesn't change the fact that they're a lot less than we would have to pay on the open market. €2,000 per person is a lot, but it's also a lot less than €4,000 per person. Is there somewhere we could have got the money for nothing?

cordially,
Scofflaw

DJCR

Scofflaw wrote: »

That doesn't change the fact that they're a lot less than we would have to pay on the open market. €2,000 per person is a lot, but it's also a lot less than €4,000 per person. Is there somewhere we could have got the money for nothing?

cordially,
Scofflaw

Huh, short of leaving the euro and printing it like mofo's................. nope

But I mean, that is a lot of money to have to pay back, surely €500 per head would have been enough?

Scofflaw

DJCR wrote: »

Huh, short of leaving the euro and printing it like mofo's................. nope

But I mean, that is a lot of money to have to pay back, surely €500 per head would have been enough?

Could have done that, I guess, if we hadn't taken on the bank debts, or if the deficit had been cut more aggressively - but then, see the preliminary wincing at the news the budget cut this year may be larger than anticipated.

No, while I agree there's room for a cut in the margin, at the amounts we're borrowing, and given the sureties demanded of those now borrowing on our behalf, there's not a lot of room. To get down to your figure, the EFSF etc would have to be applying a discount to the rates they borrow at (about 2.65%).

cordially,
Scofflaw

rumour

later10 wrote: »

This suggestion is gaining far to much credence. Countries like Ecuador can default - no, repudiate - their debt because they have friends like Iran and China, and because of their enormous natural resources. They are guaranteed that a hard default will lock them out of the credit markets - but they can afford not to care about that.

Just because we balance our budget, does not mean we can afford such dismissals. We balance our budget for one year. What happens the next year, should revenues suddenly drop, and consumer confidence drop with it? There is only so much cutting one can do if each cut prompts further erosion of national liquidity or confidence in the solvency of the state. The economy becomes in danger of behaving like a dog chasing its own tail.

I think Ireland probably will technically default on some of its debt, but the notion of defaulting unilaterally (relative to Europe) - and it being okay because we balanced our budget last year - is just not something a line of thinking that deserves to be entertained.

Unless, of course, we become Ecuador.

While I agree that just because we balance our books does not mean we can default, it would however carry enormous positives. (balancing the books as opposed to defaulting)

As for the scale of cuts it is not unfathomable to consider reverting to 2003 spending levels. That is not cutting the country to the bone far from it.

Returning to the positives our negotiating strength would be massively enhanced. In the short term we would manage our finances and be seen to do. This restores market confidence and our ability to raise finance independently. Iceland being the example.

Secondly we would put a halt to our addiction to credit to solve every problem. That is what got us to this predicament in the first place both at a personal level and at a national level.

I do not believe it leads to the 'chasing tail' scenario you describe, I think we're doing that currently.

Scofflaw

I do not believe it leads to the 'chasing tail' scenario you describe, I think we're doing that currently.

It is quite widely regarded as doing so, because cutting state spending takes the relevant stimulus out of the economy, which means a contraction in the economy, which means falling tax revenues.

cordially,
Scofflaw

rumour

Scofflaw wrote: »

It is quite widely regarded as doing so, because cutting state spending takes the relevant stimulus out of the economy, which means a contraction in the economy, which means falling tax revenues.

cordially,
Scofflaw

Taken to its conclusion you don't need a private sector the government can borrow and stimulate the economy forever using citizens labour as security. That model has been tried, tested and has failed.

I acknowledge there is a modicum of state intervention required. I think 2003 levels of approximately 30bn a year are a good place to start. Can anybody recall recount the dire state of Ireland in 2003 when we spent 30bn a year.

Also worrying about falling tax revenues from borrowed money seems somewhat illogical to me if the intention is to pay back the money.

DJCR

Scofflaw wrote: »

Could have done that, I guess, if we hadn't taken on the bank debts, or if the deficit had been cut more aggressively - but then, see the preliminary wincing at the news the budget cut this year may be larger than anticipated.

No, while I agree there's room for a cut in the margin, at the amounts we're borrowing, and given the sureties demanded of those now borrowing on our behalf, there's not a lot of room. To get down to your figure, the EFSF etc would have to be applying a discount to the rates they borrow at (about 2.65%).

cordially,
Scofflaw

Your exactness for figures is once again shown but my point still stands....... they could have asked for less

DJCR

Scofflaw wrote: »

It is quite widely regarded as doing so, because cutting state spending takes the relevant stimulus out of the economy, which means a contraction in the economy, which means falling tax revenues.

cordially,
Scofflaw

Very true ..................... eventually it gets to the stage where the government won't actually need to cut anymore, but by that time.......... there's nothing left.

View

DJCR wrote: »

Your exactness for figures is once again shown but my point still stands....... they could have asked for less

And they could have asked for more - but then, when it looked like we might ones of the states doing the loaning (to Greece back in May '10) and we, with the other member states, were setting the formula for the interest rate, how many posters complained that we were going to be unfair to them?

Obviously, we only have a problem with the rate when we have to pay it, not charge it.

DJCR

View wrote: »

And they could have asked for more - but then, when it looked like we might ones of the states doing the loaning (to Greece back in May '10) and we, with the other member states, were setting the formula for the interest rate, how many posters complained that we were going to be unfair to them?

Obviously, we only have a problem with the rate when we have to pay it, not charge it.

Cute Hoars arn't we :D:D

Scofflaw

rumour wrote: »

Taken to its conclusion you don't need a private sector the government can borrow and stimulate the economy forever using citizens labour as security. That model has been tried, tested and has failed.

I acknowledge there is a modicum of state intervention required. I think 2003 levels of approximately 30bn a year are a good place to start. Can anybody recall recount the dire state of Ireland in 2003 when we spent 30bn a year.

Also worrying about falling tax revenues from borrowed money seems somewhat illogical to me if the intention is to pay back the money.

That isn't "taking it to its logical conclusion", though, because it's the private sector that public sector spending stimulates. Ergo, the smaller the private sector the smaller the gain through stimulus.

I don't think the intention is to pay back the money - the usual intention is to get to a point where the debt can be successfully rolled over at lower interest rates.

cordially,
Scofflaw

DJCR

Scofflaw wrote: »

I don't think the intention is to pay back the money - the usual intention is to get to a point where the debt can be successfully rolled over at lower interest rates.

And back to square one we are.......... I mean, I realise the advantage of leveraging in business but with a countries economy surely, borrowing should be avoided?!?

Don't spend what you don't have .......

later12

DJCR wrote: »

Well I for one believe the French are being extreemly hypocritical. With their effective rate being lower than ours anyway (8.2% Vs 11.9%).

I know it is popular to make this accusation of the French right now, however, to suggest that 8.2% is the French corporation tax rate is misleading.

For one thing, you are only using one specific measurement of the Effective rate, and probably not the best, nor the most vigorous measurement. The measurement you are using comes from the World Bank...

The World Bank approximates the effective rate using an alternative methodology. This approach considers a representative company in a typical year of operation and computes the taxes it would pay if located in differ- ent countries as a percentage of its finan- cial income using standardized financial accounting (a “book” measure of effective tax rates).

However, this paper suggests that France has an effective average tax rate (EATR) of 27.5%.
http://www.aei.org/docLib/TPO-2011-01-g.pdf

The methodology, for anybody who takes an interest in this sort of thing is here
http://www.aei.org/docLib/TPO-2011-01-appendix.pdf

I don't know how good anybody's French is, but this figure is supported by a recent report from the French Ministry for the Economy

http://www.minefe.gouv.fr/directions_services/dgtpe/TRESOR_ECO/francais/pdf/2011-006-88.pdf

If you don't understand French, you could probably use google translate to get a grasp of the message, or failing that you can still understand the message graphically

effective rate for non financial corps within France for 2007 (different types) (moyenne = avg. rate)


I don't know how a French corporation would go about getting anything close to an 8.2% effective rate, I imagine you would have to be in a very protected industry with major debt problems, though, so probably not something to aspire to.

While I think it is extremely unhelpful that Sarkozy is not publicly admitting the benefits both to Ireland and to our debt sustainability of maintaining a lower corporate tax rate, I think it is also unhelpful for Ireland to be accusing the French economic leadership of being hypocritical, when it is clear that such criticisms are themselves misleading.

later12

rumour wrote: »

While I agree that just because we balance our books does not mean we can default, it would however carry enormous positives. (balancing the books as opposed to defaulting)

I don't disagree with that at all. I think it has to go in both directions. You have to figure out a way of stimulating the economy while cutting out inefficient use of public revenues. I think it is a delicate operation that should be approached carefully, like keyhole surgery, and not approached with a hatchet and a balaclava as some would have it done, leaving the economy dead in the gutter.

rumour

later10 wrote: »

I don't disagree with that at all. I think it has to go in both directions. You have to figure out a way of stimulating the economy while cutting out inefficient use of public revenues. I think it is a delicate operation that should be approached carefully, like keyhole surgery, and not approached with a hatchet and a balaclava as some would have it done, leaving the economy dead in the gutter.

Consider the economy as a once beautiful garden that is now overgrown. Way beyond a simple pruning. A hatchet may be appropriate in places, once done the space for growth becomes apparent. There is enormous potential in Ireland but the size of the state is hampering all other growth.

Coupled with that our rank garden is also externally threatened by storms brewing. There is massive uncertainty around many issues internationally which from an Irish perspective only increase our exposure to even more adverse conditions. (I think even the Unions have realised this and are positioning themselves to consider the unmentionable two years ago in full knowledge of what this would mean to the vast majority of their members.)

My overtly simple analogy does give rise to the question that if a storm is going to come and destroy the garden why bother trying to fix it until it has passed?
A least that way you can blame the storm.

later12

A good gardener diversifies, he has something for every season; especially if he reads J Peter Meinke.