FRANCE PLAYED down the prospect of a deal to cut the cost of the Republic’s bailout, making a breakthrough unlikely even as Taoiseach Enda Kenny said he might raise the matter with French president Nicolas Sarkozy at an EU summit.
The summit, which starts tonight in Brussels and continues tomorrow, is likely to be dominated by the debt crisis in Greece which is battling to avert a threatened default next month.
Senior European diplomats expect the country’s prime minister, George Papandreou, to come under fresh pressure at the summit to ensure Greek MPs back a drastic austerity and privatisation plan next week.
The leaders are also set to discuss divisive measures to reform the Schengen passport-free travel system, the “Arab Spring” revolts and the violence in Libya and Syria.
After talks on the Irish bailout between Ireland and France intensified, Dublin sources expressed confidence that a deal to reduce the interest rate on the loans was within sight. Such hopes have receded with sources on both sides saying a compromise is unlikely to be reached at the summit.
The French government indicated that it was waiting for Dublin to respond to “constructive” proposals on tax reform.
President Sarkozy wants Ireland to raise its 12.5 per cent corporate tax rate in return for a reduction in the rate, a demand Mr Kenny rejects. Contacts between finance ministry officials in Ireland and France, with input from European Council president Herman van Rompuy, have not resolved the standoff.
Asked whether France was willing to accept a reduction in Ireland's interest rate, a senior official at the Élysée Palace told The Irish Times: "I think we could invert the question and ask: 'is Ireland ready to discuss questions related to taxation?' " The official said the French side had tabled proposals "which we hope are constructive" to their Irish counterparts. "We're waiting for them to come back to us on these," he said.
While Irish officials believe the French finance ministry is sympathetic to Dublin’s case, Mr Sarkozy has been adamant that Ireland must make a gesture on tax.
“These talks are taking place in a positive atmosphere, but . . . we haven’t been able to reach a compromise, in spite of a certain openness on the part of the French authorities,” the Élysée official said.
The Irish interest rate is not on the formal summit agenda, but Mr Kenny said he would raise the issue with Mr Sarkozy if appropriate.
“I cannot force another country to give agreement,” he said.
Mr Kenny said responsibility had been devolved to finance ministers to negotiate a deal and some progress had been made.
“If the situation arises that it’s appropriate to have a meeting with President Sarkozy about this particular matter, I would be happy to do so, but for now I’m pleased that the Minister for Finance . . . is continuing the discussions that they were mandated to conduct.”
Ahead of the summit, European Central Bank chief Jean-Claude Trichet said red warning lights were flashing in the sovereign debt crisis.
“The most serious threat to financial stability in the EU stems from the interplay between the vulnerabilities of public finances in certain EU member states and the banking system, with potential contagion effects across the union and beyond,” said Mr Trichet, who was speaking in his capacity as head of the European Systemic Risk Board.
On the day after Mr Papandreou won a confidence motion in his new cabinet, German chancellor Angela Merkel said Greece must aggressively privatise state companies and boost tax revenue.
Dr Merkel said the vote of confidence was an important step, but she added that Greece must proceed with its economic reforms.
Although Greece remains the prime agenda item at the summit, diplomats believe a mooted overhaul of the Schengen system provides potential for conflict between the leaders.
They will discuss proposals from the European Commission to temporarily re-establish border controls in cases of extreme migratory pressure. Draft summit conclusions say such a safeguard mechanism “should” be introduced but countries such as Poland and Spain are said to be hesitant.
However, France insists there should be no dilution of conclusions.
The leaders will also discuss the commission’s call to close accession talks with Croatia so it can join the European Union in mid-2013.
The leaders are expected at the summit to condemn the Syrian government’s brutal crackdown against pro-democracy supporters.
They will also discuss the Nato bombing campaign in Libya, something which divided EU leaders.
With the lack of full US involvement seen as a major drawback, the campaign has stretched the British and French air forces. Months into the intervention, Libyan leader Muammar Gadafy remains in place.