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Irish handbags: Irish Prime Minister Kenny Rejects Merkel’s Bailout Terms

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Irish Prime Minister Enda Kenny rebuffed German Chancellor Angela Merkel’s conditions on easing bailout terms, setting up a clash as European Union leaders struggle to break a deadlock on tackling the debt crisis.

Kenny, arriving for his first summit as Ireland’s leader, rejected Merkel’s position to harmonize the corporate tax base in the euro region. Greece has already dismissed selling state- owned land to cut debt, her other prerequisite for reducing the cost of rescue loans.

“I’ve come here in two days in government with a very strong mandate from the Irish people,” Kenny told reporters in Brussels today. Late yesterday, he said, “I would not support any adoption of a common corporation tax rate.”

EU leaders are entering the final round of bargaining as they attempt to hammer out a package to snuff out the euro-area crisis by a March 25 deadline. Bond yields in Greece and Portugal touched euro-era records this week and debt ratings of Greece and Spain were cut.

“There is not much time left,” Pier Carlo Padoan, chief economist with the Organization for Economic Cooperation and Development in Paris, said in a telephone interview. “This is a critical time for Europe -- a failure to provide an effective response to the situation would be something that everybody in Europe would pay for and regret.”

After Portugal’s 10-year bond yields reached 7.70 percent on March 9, the highest since at least 1997, Prime Minister Jose Socrates’s government today announced “significant” new commitments on deficit reduction.

Portuguese Cuts

The additional measures amount to 0.8 percent of gross domestic product for this year and should allow Portugal to bring the deficit down to the EU’s 3 percent limit in 2012, EU Economic and Monetary Affairs Commissioner Olli Rehn said.

The move is “an important building block of the needed comprehensive response to the sovereign debt crisis,” Rehn said in a statement. Portugal’s five-year yield rose 15 basis points to 7.92 percent, a fresh record, as of 11:15 a.m. in London amid speculation Socrates would soon seek a financial lifeline.

“I hope the European leaders understand the seriousness of the situation we’re facing,” Portuguese Finance Minister Fernando Teixeira Dos Santos said in Lisbon.

Merkel, hemmed in by her coalition’s resistance to burden German taxpayers with additional bailout costs before six state elections, signaled flexibility yesterday for the first time in tackling the crisis that forced Greece and then Ireland to seek aid from the EU and International Monetary Fund.

Rescue-Fund Capacity

In addition to backing what she called a moderate reduction in the cost of Greek and Irish loans, Merkel indicated support for raising the European rescue fund’s effective lending capacity to its headline figure of 440 billion euros ($605 billion) and for making sure that the facility replacing it in 2013 can pay out its full 500 billion euros if needed, according to four lawmakers who were present at the closed-door hearing.

In return, she set a proviso that any about-turn by Germany over interest paid by Greece and Ireland for aid be tied to strict conditionality, the lawmakers said.

That offer was shot down by Kenny after he held talks with European Commission President Jose Barroso.

“I’ve already made the case that I consider the common corporate tax base would have the same effect: this would be harmonization of taxes through the back door,” Kenny said.

Kenny and Greek Prime Minister George Papandreou traveled to Berlin separately last month to persuade Merkel to support an easing of lending terms. She snubbed Kenny’s plea to cut the cost of Ireland’s 85 billion-euro bailout at a March 4 meeting of their European People’s Party, saying “relief isn’t the issue.” Kenny wants to lower the 5.8 percent interest rate on aid loans and end the protection of senior bank bondholders.

‘Historic Decisions’

Papandreou, arriving for the summit today, called for EU leaders to take “historic decisions.”

“We have taken the pain to make country economically viable,” he said. “But we now need European decisions, strong decisions, to calm the markets.”

Greek securities plunged this week after Moody’s Investors Service cut the nation’s rating, already at junk, by another three levels, saying the probability of default had increased.

The difference in yield, or spread, between Spanish and German securities increased for a fourth day, rising five basis points to 231 basis points, or 2.31 percentage points, as of 7:42 a.m. in London. The Italian-German yield spread widened four basis points to 176 basis points. The euro fell 0.3 percent to $1.3758 as of 11:29 a.m. in Berlin.

Competitiveness Plan

As part of the quest for a comprehensive crisis-fighting package, the EU is closing in on a plan today to raise the region’s competitiveness and tighten economic cooperation, German and French officials said.

The pact, which includes chapters on competitiveness, labor, sustainable public finances and the stability of financial systems, sets objectives rather than binding targets, leaving countries free find their own policy mix, the officials said on condition of anonymity because the talks are not public.

“I can imagine the euro zone countries will agree on the competitiveness pact,” Dutch Prime Minister Mark Rutte told reporters today. “At the same time, it is all very much national and not enforceable, but it will undoubtedly help to strengthen the economies.”

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