Ireland Teetering On The Brink

by Amanda Banks, Tax-News.com, London

15 November 2010

Ireland has admitted that its finances are in crisis, as investors question the country's ability to go it alone in tackling its deficit without European support.

Despite reassurances by European diplomats in Dublin that there is a bailout facility on standby for Ireland, Irish bond yields soared to record levels on November 12, again increasing the cost to Ireland of financing its debt.

"The bond spreads are very serious and there is international concern throughout the eurozone about that," Lenihan admitted in Dublin on November 12.

EU Commissioner Olli Rehn has recently been present in Dublin as a show of EU solidarity towards Ireland as it battles its perilous financial situation, urging the adoption of multi-party consensus on how to rein in the deficit and assuage market concerns.

Speaking more recently, European Commission President, Jose Manuel Barroso, confirmed at the G20 summit in Seoul on November 12 the EU's backing of Ireland: “What is important to know is that we have all the essential instruments in place in the European Union and eurozone to act if necessary...In case of need, the EU is ready to support Ireland."

"[The EU] is monitoring the situation closely,” he added.

Some analysts suggest the chances are rising that Ireland will need to enter into a financing arrangement brokered by the International Monetary Fund.

Analysts and investors are also keeping a close eye on Portugal, which is also facing rising interest rates on its debt and is in a similar predicament to Ireland.

In May of 2010, European governments agreed upon a EUR110bn capital injection for Greece to save the country from default.

Ireland continues to hope that it will not need external support to manage its finances; fears are prevalent that Irish tax sovereignty will be at risk should it seek EU intervention, with its sacrosanct 12.5% corporate tax rate at particular risk.

Speaking in Ireland last week Rehn said that it was almost inevitable that Ireland would need to resign itself to 'normal tax' policies within the decade.

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