Patrick Honohan’s latest speech is here.
In addition to explaining the extent of the recapitalisation of the Irish banking system, he also highlights the desirability of transferring risk to foreign investors, either through the sale of banks or the sale of packages of loans (including residential mortgages).
Today’s Eurointelligence bulletin predicts that any EFSF intervention for Ireland will involve an increase in the corporate tax rate. Whether Ireland’s low corporate tax rate is good for wider Europe is certainly open to debate (a good recent paper is “Corporate Tax Harmonisation in the EU” by Bettendorf et al [Economic Policy, July 2010]) .
However, it is worth pointing out that Ireland collects a reasonable amount of revenue from this source (see table below). It is certainly possible that short-term revenues would rise with an increase in the tax rate but it would be a shock to the multinational-dominated export sector. Since this sector is playing a key role in providing momentum to the economy, it is doubtful that this would be put at risk during a crisis situation.
Corp Tax
Bruegel have released a proposal in relation to the resolution of future sovereign debt crises. (Since the mechanism does not yet exist and would require a Treaty change, it only relates to future debt issuance after its establishment – it has no implications for already-issued debt or any debt issues in the near future.) It has two elements:
1. A procedure to initiate and conduct negotiations between a sovereign debtor with unsustainable debt and its creditors leading to, and enforcing, an agreement on how to reduce the present value of the debtor’s future obligations in order to re-establish the sustainability of its public finances. This would require a special court to deal with such cases. The European Court of Justice is the natural institution for this purpose and a special chamber could be created within it for that purpose.
2. Rules for the provision of financial assistance to euro-area countries as an element in resolving the crisis. Should a euro-area country be found insolvent, the provision of financial aid should be conditional on the achievement of an agreement between the debtor and the creditors reestablishing solvency. The task of supplying financial assistance could be given to the EFSF provided that it is made permanent and an institution of the European Union. Lending by the permanent EFSF could also be provided, under appropriate conditions, to euro area countries facing temporary liquidity problems, as currently foreseen by the temporary EFSF.
The Irish Times profiles Constantin Gurdgiev in this article.
In addition to dealing with the current crisis, the Irish political system must also grapple with the task of ensuring that the quality of public policy formation (and delivery of public services) improves over the longer term. To this end, Fine Gael has published a very long list of reforms in its “Reinventing Government” document, which is available here.