The Germans have told Irish Finance Minister Michael Noonan to forget about an interest rate reduction on the EU bail-out unless he increases corporation tax levels.

Germany’s Finance Minister Wolfgang Schaeuble has demanded that Ireland increase its corporate tax rates before any reduction in the interested charged on the bail-out will be considered.

The threat was made in the Hungarian capital of Budapest where EU Finance Ministers gathered for a major conference dominated by Portugal’s request for an Irish style rescue plan.

Minister Noonan hopes that Portugal’s problems will help Ireland gain a reduction in the interest rate charged by the EU and the IMF for rescuing the economy and the banks.

But his German counterpart Schaeuble was in no mood for compromise at the end of the two day informal summit.

“With Ireland the rescue package conditions were agreed at the end of last year,” said Schaeuble.

“If Ireland wishes to change the conditions, which was an issue discussed at the meeting of the heads of government on March 11th, then Ireland must, as Greece did, make suggestions as to what it can do for its part.

“If Ireland doesn’t want to make any changes then there is no willingness on the side of the governments to make changes.

“It is an important step that we in Europe, also on the basis of the proposals of the German Chancellor, try to establish a common approach to calculating corporation tax. It is a step in the right direction.”

However, Irish Finance Minister Noonan is standing firm on the country’s 12.5% corporation tax rate and made Schaeuble aware of this in Hungary.

Minister Noonan is confident that he can secure a percentage point drop in the interest charged on the Irish bail-out, from 5.8 per cent to 4.8 per cent, by June.

Such a move would save the Irish tax-payer €450million in interest payments each year.

A spokesman for Minister Noonan told the Irish Mail on Sunday: “The Minister is not for turning on the corporate tax rate of 12.5 per cent and he has made that clear to the Germans.

“The Portuguese are pressing to keep the interest rate on their bail-out low and their gain will be ours. When they get a favourable rate, we will too.

“The Greek rate has already been cut by a point but the clear and present issue is the Portuguese bail-out and negotiations on those terms are ongoing.

“They are sure to get a more than favourable rate as the most powerful man in the EU is Commission President Jose Manuel Barroso and he is Portuguese.
“He has thrown his weight behind negotiations and if they secure favourable terms so will we. Their gain is our gain.”

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