Ireland warned on Wednesday that French and German proposals to introduce a new financial transaction tax will face opposition from other European countries and Dublin will insist that any such tax apply to the entire EU, not just euro zone members. Ireland is a major centre for funds administration in Europe and promoting the industry is a top priority for the government as it seeks to rehabilitate Dublin's reputation as a financial centre in the aftermath of a devastating local banking crash.
"We can't have a situation where there is a transaction tax in Dublin and there is no transaction tax in London," Finance Minister Michael Noonan told Ireland's state broadcaster on Wednesday. German Chancellor Angela Merkel and French President Nicolas Sarkozy proposed the new financial transaction tax on Tuesday as part of proposals to shield the euro zone from a deepening debt crisis. But Noonan said such a suggestion had already been rejected at a meeting of European leaders last month and fresh proposals would face renewed opposition, possibly even from financial firms in France.
"There would be a lot of objections to it from countries with strong financial services industry participation - Luxembourg, Netherlands, even Paris." "One of the key things we need to watch is that if some kind of transaction tax comes in that it would apply to the whole 27 (European Union countries) rather than the 17 euro zone countries." But even if a financial transactions tax is imposed Europe-wide it could put Ireland's funds industry, which had 1.87 trillion euros under administration at the end of last year, at a disadvantage against competitors in the Cayman and British Virgin Islands and potential rivals in Europe. "Globally there are definitely other jurisdictions which have looked at Ireland and Luxembourg's success as funds' domiciles and are considering moves to compete," said Paul Farrell, a partner at Walkers Global Investments Funds Group in Dublin.
Merkel and Sarkozy unveiled plans for deeper fiscal union on Tuesday including the introduction of a constitutional brake on national deficits. Noonan said such a proposal could be "quite an attractive proposition" but cautioned that it could make the budgeting process more difficult if the limits were too tight. Ireland will introduce new legislation this autumn putting a limit on borrowing levels for future budgets, one of the conditions of its EU-IMF bailout, but altering the constitution, which France and Germany are suggesting, would require a referendum.
Noonan dismissed the idea that such a constitutional change would give Paris and Berlin power over Ireland's public purse. "It would be giving the Irish people and the people in other European countries very strong sovereign rights to impose borrowing limits on their governments."
Noonan said a proposal to set a united corporate tax rate for France and Germany would not affect Ireland's low corporate tax rate, seen as key to attracting foreign direct investment. Overall, he described the proposals from Paris and Berlin as evolutionary rather than revolutionary and he said it made sense that Germany and France were leading the changes.
"The currency was driven by a Franco-German initiative and they are still the drivers of the currency and if the currency is to be secured and if it is going to be the instrument that drives us back to prosperity then it is important that France and Germany would continue to be the drivers."
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