MINISTER FOR Finance Michael Noonan meets his German counterpart Wolfgang Schäuble for talks in Berlin this afternoon.
On his first trip as Minister to the German capital, Mr Noonan will also deliver a keynote address entitled “Ireland – living up to its challenges”.
Other topics of discussion with Mr Schäuble will be euro zone turbulence, the downgrade epidemic and Ireland’s challenging economic prospects.
Mr Noonan’s challenge in Berlin, according to Irish officials, is to explain Ireland’s reform progress so far while making German partners aware of the difficulties that lie ahead.
German concerns at the moment are focused on the conditions attached to future bailouts, in particular attempts by other euro zone members to weaken the link between the new “fiscal compact” and assistance from the permanent ESM fund.
Chancellor Angela Merkel is anxious to resist this, fearing the domestic consequences, but may have to settle for a political rather than legal link.
“This remains a very important issue for us. They remain two sides of the same coin because you cannot have the ESM safety net without the obligations that go with it,” said one German official yesterday.
“We know the issue for Ireland is the referendum, but we don’t see a way around it.”
Despite German demands, officials in Berlin are confident that it will be possible for negotiators to find a technical solution.
Under fire around Europe for the austerity demands it is placing on its neighbours, German officials have championed the Irish example as proof that reforms work.
Opinion is mixed, however, on Ireland’s future in the EU-IMF programme given the gloomy economic outlook. Some insist that Ireland’s flagship role, compared to the struggling Greeks, makes it crucial for it to remain an example in the future. Others here accept that the goodwill Ireland has generated by meeting its targets in the past should in the future open the door to greater flexibility on terms should it be required in 2012.
“It should be the case that the good pupils are rewarded for their perseverance, not punished with demands for continued adherence to the programme,” said a senior official. “But the Irish side haven’t raised this with us directly.”
The interest rate on Ireland’s EU-IMF loans is likely to be discussed, although Germany sees little room for negotiation here. Latest loans have been given at the refinancing costs, say German officials, who are not willing to lose money on bankrolling Ireland.
Discussion of a European financial transaction tax will loom large over the talks. Mr Schäuble favours a tax at euro zone level if nothing else is possible, and he has won over Dr Merkel to this viewpoint. She maintains that this is her personal view as leader of the Christian Democratic Union (CDU), mindful that her FDP junior coalition partner is opposed.
It remains to be seen whether in the short term Berlin will join France in implementing such a tax. Politicians from FDP and regional officials from the financial capital Frankfurt share Irish concerns that leaving the City of London outside the tax system will create competitive disadvantages and dangers for their own domestic financial sector.
