ANALYSIS:New rules on fiscal rectitude are clearly essential. But how are we all going to agree, writes DAN O'BRIEN
A LARGE German man, towering over his audience as he stands on a pedestal, atop a podium, in a small room. That was the scene yesterday when Bernd Pfaffenbach, a junior German economics minister, spoke at a think tank in Dublin.
In these troubled times, when political leaders from Europe’s biggest and sturdiest economy speak, everyone pays attention.
First things first. Does Germany want Ireland to raise its tax rate on companies’ profits? The issue was not raised during the talk, so later in the day in an interview with Pfaffenbach, The Irish Times asked the question.
The minister said it was not his place to offer advice on such matters, but that “some would say it would be better” if Ireland had a higher corporation tax rate.
He stressed, diplomatically, that this was not a “demand”.
There is no little paranoia in this country about corporation tax rates. Some appear to believe that all Europeans spend every waking hour thinking about ways to impose higher taxes on businesses operating in this country. It isn’t so.
Pfaffenbach had plenty to say on budget rules for euro zone countries. Currently, Europe’s president, Herman Van Rompuy, is brokering a deal among the participating countries on tougher rules. (The existing Stability and Growth Pact, which was supposed to prevent Greek and Irish-style budget deficits, has evidently failed.)
New rules need more teeth, Mr Pfaffenbach believes. Without sanctions it will be difficult to persuade countries who err repeatedly to mend their ways. Curiously, though, it is not clear who would police tougher rules as he said Germany was reluctant to give the European Commission more powers in the area.
He also advocated widening new rules to include not just budgets, but measures of economies’ competitiveness because stable public finances ultimately depend on this.
Doing so would result in a greater “exchange of views” on all aspects of economic policy and the acceleration of the adoption of “best practice” across the bloc.
Although at pains to avoid hectoring, he thinks other countries should follow Germany’s lead and put balanced budget clauses into their national constitutions.
In Ireland, that would involve politicians campaigning in a referendum to tie their own hands. Fat chance.
Germans’ near obsession with central bank independence was, predictably, stressed yesterday. Mr Pfaffenbach said that Germany opposed anything that would smack of political interference in the European Central Bank.
When asked later by The Irish Timeswhat he thought about the ECB buying the government bonds of fiscally weak countries as a means of calming market panic, he was clearly uneasy.
Germany had “difficulty” with this, but had agreed to it in May at the height of the government debt crisis. Mr Pfaffenbach clearly still has difficulty with it as he swiftly brought discussion of the matter to a close.
For a minister to talk about what the ECB does could be construed as undermining the bank’s independence. Quite.