Rumour Control ie the bailout/nonbailout of the Irish republic

[Louis VI the Fat]

The simplified political economy story goes as follows. Ireland had low nominal and even lower effective corporate tax rates. It also had low personal taxes, both because of the belief that this would foster entrepreneurship etc, and because the government used to periodically sweeten bargains between business and labor by promising tax cuts (which of course favored the rich more than the poor), inter alia buying off unions who might otherwise have started getting feisty about organizing the unorganized bits of the new Irish economy.


The result was that even with booming economic growth, the government faced a fiscal hole. This hole was filled by taxes on property transactions which, as the property market got ever more bubbly, became an ever more important source of government revenue. This provided the government with an extremely strong incentive not to deflate the bubble, reinforcing the already considerable incentives towards inaction resulting from cronyism between politicians and property tycoons, ideological notions about not interfering with ‘free’ markets etc.


When the bubble burst and the bezzle came into full view, the results were quite unpleasant, as this ESRI graph shows.


http://crookedtimber.org/2010/11/09/...s-of-impunity/

No taxation for corporations in Ireland. How then, did the Irish government get its funds? By taxation on property transactions. These the government subsequently stimulated. But prices can't go up forever, the whole of Ireland is not worth more than the rest of Europe. It is a pyramid game. Sooner or later it ends.

Now the bubble has burst, the pyramid collapsed.

The European taxpayer is now kindly requested to please foot the bill, to please fill the budget deficit that Ireland refuses to fill with mature corporate taxation. The tight, ever so very tight connections between Irish politicians and Irish / Irish-American businessmen has held: as we speak, as tens of billions of European taxpayer money keeps Ireland afloat, Irish politicians stubbornly refuse to levy taxes on their businesses.
But while these cronies can the Irishman with apparant impunity, the European taxpayer is less easily intimidated. Nor have we European taxpayers all been lured into the pyramid game with the promise of a second home and an ever increasing value of the first.

Europe has had a long standing conflict with Ireland's ill-displined taxation scheme. One Greece is enough. Both countries receive massive EU funding, yet both refuse to collect taxes internally, because of corrupt politicians. Now on top of the massive subsidies both need enormous bailouts too. Enough of all that. Europe is not a through for corrupt countries. If it were up to me, Ireland must implement stern German fiscal discipline if it wants to receive a bailout:

French and German officials are pressing Ireland to increase its low corporate tax rate in return for an aid package, setting the stage for a showdown over a policy long resented by Dublin’s European partners.
Ireland views the corporate tax rate, set at 12.5 per cent, as the cornerstone of its industrial policy. On Thursday Irish officials reiterated their determination to protect it. “It’s non-negotiable,” Mary Coughlan, the deputy prime minister, told parliament.


French, German and European officials told the Financial Times that the tax rate had emerged as a major point of contention as negotiators from the European Union and International Monetary Fund arrived in Dublin to discuss a potential bail-out

http://www.ft.com/cms/s/9c09aa1a-f2f...#axzz15rMwR94k

[gaelic cowboy]

Europe has had a long standing conflict with Ireland's ill-displined taxation scheme. One Greece is enough. Both countries receive massive EU funding, yet both refuse to collect taxes internally, because of corrupt politicians. Now on top of the massive subsidies both need enormous bailouts too. Enough of all that. Europe is not a through for corrupt countries. If it were up to me, Ireland must implement stern German fiscal discipline if it wants to receive a bailout:

A best you will get 2 or 3 % hardly a major victory for people intent on destroying our corporate tax rate. High tax wont work here we ruined the country in the 1980s with it over 60% tax rate an interest rate of 20% on loans it was a terrible time and no one is going to accept going back to that high tax world it wont work.

Interestingly the tax rate is low but companies have switched to other countries like Poland or even further afield seems like tax is not the only reason to site a factory in a country.

If tax was the only criteria then there would not be a single factory in France and everything in the world would be made in China.

[Louis VI the Fat]

companies have switched to other countries like Poland or even further afield seems like tax is not the only reason to site a factory in a country.

Taxes are not the only criterium indeed.

Microsoft is perfectly environmentally friendly and without any strenous labour whatsoever. Therefore MS chooses to be based in the tax haven of Ireland.
Other companies can gain a competitive advantage by producing enviromentally unfriendly, therefore they settle in the EU country with the least environmental protection. Yet other companies require dangerous, unhealthy work. They settle in the EU country with the lowest social standards.

In this manner, Europe being a common market, companies can go shopping for the country willing to bend over backwards most for their particular requests. We are turning ourselves into India. Little nine year old girls picking batteries for twentyfive cents with disastrous environmental damage.

There is nothing clever, or 'competitive' about mature democracies in a common market undercutting each other. It is silly, unsustainable, and not at all conducive to creating either a healthy and wealthy society nor a thriving business environment.



'Race to the Bottom' - http://en.wikipedia.org/wiki/Race_to_the_bottom

[gaelic cowboy]

So if Microsoft only care about tax why would they pay French corporate tax levels in Ireland if they wont even pay it in France when India is available by modem. There was no computer industry here in Ireland before the rate was lowered and it's obvious to anyone they will leave not just Ireland but the EU and then no one has a job and you never get any bailout money back ever.

[gaelic cowboy]

There is nothing clever, or 'competitive' about mature democracies in a common market undercutting each other. It is silly, unsustainable, and not at all conducive to creating either a healthy and wealthy society nor a thriving business environment.



'Race to the Bottom' - http://en.wikipedia.org/wiki/Race_to_the_bottom

There is even less cleverness is trying to buck the inevitable the only way were going to afford anything in the future in any European country is if pretty much the majority of the social protections are removed.

Basically we will have to decide if we want people working or unemployed.

I choose work over the dole anyday.

[Louis VI the Fat]

/Anyway, after Greece and Ireland, who's next for the banksters?

The routine is established. Cry high risk, sell bonds at enormously inflated interest rates to account for this risk, next cry panic, get somebody to guarantee the bonds for you. And voilà, high yield bonds, perfectly secured.


Portugal? Not in any particular dire straits, but always a weak economy, an easy prey.
Belgium? A strong economy, but with some debt issues. Most importantly, politically volatile. A determined attack on Belgium will mean the Belgian governments attack one another, instead of tackling the problem. An easy prey.
Spain? The big elephant in the room. A property bubble of near Irish proportion, but on a vastly larger scale. Spain may be too big too fail, and too big too bail out. It will be a great game of bluff between the haute finance crooks and Europe.

[gaelic cowboy]

The game is up for the Euro the masters of the universe see weakness and there moving in the Core will try to defend the weaker areas to defend themselves and therefore sicken the euro internally.

Large scale euro area default mechanism sometime in 2012 I expect and euro 2.0 later on to be a smaller currency PIIGS to be let go after they have defaulted as one.