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News : Irish Economy Last Updated: Jul 20, 2015 - 4:06 PM


Ireland vs Greece: Enda Kenny's false claims on growth, taxes and debt
By Michael Hennigan, Finfacts founder and editor
Jun 26, 2015 - 3:57 PM

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The Danish newspaper Sjællands Nyheder shows Enda Kenny, taoiseach, behind Alex Tsipras, Greek prime minister, Brussels, June 25, 2015

Ireland vs Greece: Enda Kenny, taoiseach/prime minister, on Thursday in Brussels suggested that following the Irish bailout in 2010 there were no rises in taxes and he also said that Ireland would not support debt relief for Greece.

The claims on taxes are false not only in respect of specific measures but also in respect of increasing tax revenues that were part of the so-called consolidation budgets that were introduced after Kenny took office in early 2011 while in June 2012 Kenny claimed that EU leaders had made a deal on the Euro Area's rescue fund assuming responsibility for about €64bn in Irish sovereign debt that resulted from bank rescues — the apparent deal on bank debt had been hailed as a "seismic shift" but it turned out to be a mirage.

The Irish Times has reported that Kenny said on the way in to a summit of EU leaders in Brussels on Thursday, that he had pointed out at a meeting earlier in the day, of the European People’s Party (EPP), that Ireland had emerged from its crisis by pursuing pro-growth policies.

“I pointed out at the EPP that in Ireland’s case we did not increase income tax; we did not increase VAT; we did not increase PRSI (social security) but we put up alternatives to those measures that were proposed in order to keep a pro-growth policy and to make our country competitive and to provide jobs for our people.”

He said that in the later discussion with the other EU leaders he would repeat those changes that Ireland was able to make to underpin the recovery.

“It is difficult to see the beneficial effect of measures that increase the tax on labour that increases income tax and increases PRSI. These are not in the interest of growth. That is what the discussions are about."

Before the Irish bailout in November 2010, there were income tax, VAT and social security tax hikes in addition to cuts in public pay and pensions, that boosted revenues in the period after March 2011 when Kenny's government took office.

In the first budget presented for 2012, the Department of Finance noted that €1bn would be raised from new measures.

The standard rate of VAT was increased by 2 percentage points from 21 to 23% with effect from 1 January 2012.

A reduction in 2011 in the lower VAT rate on tourism activities to 9% was funded by a tax on private pension funds. It was called a levy.

New taxes introduced included a property tax and a charge for water while tax on deposit interest was hiked.

Debt

In June the Irish Government claimed that European leaders had agreed a deal for the Euro Area rescue fund to assume responsibility for Irish bank-related sovereign debt and the relevant paragraph of the communiqué of the June 29, 2012 European summit, reads:

We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM (the rescue fund for the single currency) could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally."

There was no commitment about retrospective payments and nor was there a suggestion of an agreement that the European Stability Mechanism (ESM) rescue fund, would in future recapitalize banks. A possibility is not a commitment or agreement.

However, Enda Kenny, taoiseach, claimed the EU statement was a seismic shift in EU policy.

“What was deemed to be unachievable has now become a reality and that principle has been established and decided and agreed upon by the council, by the heads of government,” he said in a comment to the media in Brussels.

“This is a massive breakthrough for Ireland and it changes the game in terms of our bank debt,” Eamonn Gilmore, then tánaiste / deputy prime minister, told RTÉ radio. “This deal will allow the country to recover much faster,” he said.

Michael Noonan, finance minister, said: “This [deal] takes this further in terms of policy and the intention now is to separate certain bank debt completely from the sovereign balance sheet.”

The Irish ministers, with good experience in spin, appeared to have believed that by claiming that an actual deal had been done, would bring pressure on Germany.

Wonder if anyone of them could name a leader who promised a refund?

The "seismic shift" is now past history for the Irish Government and having failed to get debt relief, the Irish Government opposes eventual Greek debt relief on a burden that is now at about 180% of GDP.

On Thursday when Kenny was asked if Greece should get debt relief, he answered with a firm "No."

Last Monday it was reported that Michael Noonan, finance minister, had supported Wolfgang Schäuble, German finance minister, who at meeting of Eurozone finance ministers had suggested that Greece should be subject to capital controls rather than its banks getting emergency funding from the European Central Bank.

On Tuesday Noonan suggested his comments on Greece at the Eurogroup meeting on Monday were misrepresented — but he did not deny what was reported and it is reasonable to assume that the report was accurate.

He told the Dáil on Tuesday he believed it was important that an agreement with Greece was negotiated by Thursday at the latest.

“That is my position,” he added. “Anything else is based on leaks, suppositions and spin.”

Greece needs a growth strategy but the lies coupled with the failure of the Irish Government to get any debt relief itself following what it called a "seismic shift" 1in 2012 and its current opposition to any future debt relief for Greece, is quite extraordinary.

The Irish Government in effect gives the impression that it is afflicted with a bad case of Stockholm Syndrome. 

Greece and other poor countries in Euro Area will not become rich

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