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News : EU Economy Last Updated: Mar 14, 2011 - 4:35 AM

Germany and Austria say Ireland must make concessions in return for a lower interest rate on EU-IMF loans
By Michael Hennigan, Founder and Editor of Finfacts
Mar 11, 2011 - 6:40 AM

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Taoiseach Enda Kenny, pictured in his office in Government Buildings, following his election on March 09, 2011. In the background is a painting of Michael Collins, one of the founders of the Irish State.

In advance of today's meeting of EU leaders to discuss Eurozone reforms, both Germany and Austria said Ireland will have to make concessions in return for a lower interest rate on the EU-IMF loans.

On Thursday, Taoiseach Enda Kenny met European Commission president, José Manuel Barroso, and a spokeswoman told RTÉ that during the hour long meeting, President Barroso expressed an understanding that the interest rate on the Irish bailout was a major issue for Ireland and said the Commission supported Ireland on the issue.

Last November, the EU and IMF agreed to provide a €67.5bn loan facility at a rate of 5.8%, even though the funding cost was 2.9%.

The rate on the IMF's €22.5bn portion of the loan was below 4% (variable depending on the maturities of the advances) and a readjustment of member quotas by the Fund last week, triggered a cut in the rate charged to Ireland.

Josef Pröll, Austrian finance minister and vice-chancellor, said in an interview in the Financial Times published today that he was only willing to negotiate on cutting the loan interest rate, if Ireland made more concessions.

He said Ireland would have to outline what it could do more at a national level to reduce their debt and deficit.

Germany Chancellor Angela Merkel’s Christian Democratic Union party is facing a number of provincial elections and in Berlin on Thursday, at a closed-door meeting, she is reported to have told parliamentary colleagues that she would back lower interest rates for emergency loans if Greece agrees to sell state assets and if Ireland backs a common corporate tax base in the Eurozone.

The latter would not involve a change in the corporate tax rate but it would give countries where multinationals make a large proportion of sales in a domestic market, an opportunity to gain a larger share of tax on profits, based on the ratio of sales across the European Union.

Last night,  Taoiseach Enda Kenny told reporters in Brussels that this proposal is not acceptable.

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