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Ireland’s Kenny Says Taxpayers Shouldn’t Bear All Bank Costs

Irish Prime Minister Enda Kenny. Photographer: Aidan Crawley/Bloomberg
Irish Prime Minister Enda Kenny. Photographer: Aidan Crawley/Bloomberg

Irish Prime Minister Enda Kenny said it’s “grossly unfair” that taxpayers alone should carry the cost of bailing out the country’s banks as he pushed for lower rates on a European-led rescue loan.

Kenny, on a visit to Washington where he says he’s trying to repair Ireland’s “damaged” reputation, called for changes to the aid package by the European Union and the International Monetary Fund to avoid a situation where Ireland struggles to pay back its loan and can’t generate economic growth.

“It is grossly unfair to expect the taxpayer to have to pay 100 percent for the reckless lending practices of banks which caused this in the first instance,” Kenny said yesterday in an interview with Bloomberg Television’s “InBusiness With Margaret Brennan” broadcast today. The 5.8 percent average rate Ireland pays for its loans is “too severe,” he said.

Kenny’s Fine Gael party took power last week after pledging to seek a European agreement on sharing the cost of rescuing the financial system with senior bank bondholders. His government is counting on ongoing stress tests to reveal the full extent of potential losses at the country’s lenders, after injecting 46.3 billion euros ($64.4 billion) into the financial system over the past two years.

Kenny stopped short of saying who should pay along with taxpayers. Asked about the treatment of senior bondholders, Kenny said that his government will put no additional cash into banks “until you see the scale of what the liability is, until there is an understanding of what might be here.”

U.S. Meetings

Kenny met with Treasury Secretary Timothy F. Geithner yesterday as part of his U.S. visit. He will hold talks with President Barack Obama today and attend the annual White House reception for St. Patrick’s Day, Ireland’s national holiday.

The Irish prime minister vowed to keep the nation’s corporate tax rate “intact” to attract foreign investors, adding that his country is “open for business.”

Less than a week after failing to obtain a discount on the rate charged by the EU because of Ireland’s refusal to increase the country’s 12.5 percent company tax, Kenny repeated he is not willing to negotiate it.

“It’s not correct to equate a conditionality of a reduction in interest rates with the condition that a corporate tax is increased,” he said. “I am not prepared to compromise on something that is the individual competence of each country in respect of our corporate tax rates.”

‘Playing With Fire’

The premium investors charge to hold Irish 10-year debt over the equivalent German bunds, Europe’s benchmark, was little changed today at 641 basis points. It reached a record of 680 on November 30, two days after the bailout.

Citigroup Inc. Chief Economist Willem Buiter said EU leaders are “playing with fire” by not acceding to Ireland’s request as it may force the country to restructure its debt unilaterally.

“They have to come up with something for Ireland,” Buiter said. “They’re going to have to make concession or Ireland will have no option but to go it alone.”

French President Nicolas Sarkozy and German Chancellor Angela Merkel at a March 11 euro-area leaders summit refused to extend a cut of Greece’s borrowing costs to Ireland as Kenny pushed back on taxes. Ireland has used the rate, which is about half the EU average, to lure companies such as Hewlett-Packard Co. and Pfizer Inc.

Ireland pays an average 5.8 percent interest rate on the 67.5 billion euros of aid from the IMF and the EU. Kenny said he expects to obtain “some flexibility” from Europe.

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