Tomorrow’s big meeting of eurozone leaders marks the beginning of 14 days of negotiation that need to come to some sort of grand conclusion for the future of the region at the March 24-25 EU summit.It’s essentially a conflict between Germany’s Chancellor Angela Merkel and everyone else. Merkel wants some sincere concessions from other eurozone members before she’s willing to budge on the bailout terms for Ireland and Greece.
Today, it emerged that the terms are as follows: Ireland, give up your low corporate tax rate and Greece, sell you state owned assets. And then we’ll think about lowering your bailout loan interest rate.
Ireland increasing its corporate taxes is all about convergence around The Franco-German “Pact for Competitiveness.” That plan calls for a standardization of the corporate tax rate, of retirement ages, and caps on government spending. Ireland is unlikely to budge on the issue, as low taxes are a key driver for its growth.
Nearly everyone expects a weak conclusion to the negotiations that pushes the eurozone’s big problems down the line.
If these 13 days result in little more than a minor agreement on a small expansion of the region’s bailout fund and a few “pact for competitiveness” style reforms, bond markets will react negatively and the pressure on Europe will again be very real.