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Ireland’s New Leader Wrestles With Lingering Debt Problems, EU Bailout

March 17, 2011 at 6:47 PM EST
Margaret Warner reports on Ireland's debt woes and talks with new Prime Minister Enda Kenny about his country's struggle to revive a once-thriving economy.
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JEFFREY BROWN: Next tonight, Europe’s debt problems pay a call on the White House.

Margaret Warner reports.

U.S. PRESIDENT BARACK OBAMA: There’s just an incredible bond between our two countries, and that’s one we want to reaffirm here today.

MARGARET WARNER: There were shamrocks, but not many smiles, when President Obama welcomed new Irish Prime Minister Enda Kenny today for a traditional St. Patrick’s Day visit. Mr. Obama did promise to visit Ireland, birthplace of one of his great-great-great-grandfathers, in May.

ENDA KENNY, Irish prime minister: And we will make sure that your visit is warmly received and generously treated. And if you want the old round of golf, I would be very happy to participate with you.

BARACK OBAMA: I hear Taoiseach is pretty good, so I have got to be careful. I may have to practice before I play with him.

MARGARET WARNER: But just eight days into the job, the Irish prime minister has a deadly serious purpose on this trip: to bolster his debt-battered country’s international standing, especially with American business investors in Ireland.

Ireland’s once-booming economy, the Celtic Tiger of the mid-’90s, attracted some 600 American multinationals. But in 2008, its speculative real estate market went bust, and its free-lending banks nearly did, too, until the Dublin government poured billions of euros into the banking system. Before long, it was Dublin that needed a bailout, a $93 billion rescue package last November from the European Union and International Monetary Fund.

Tough austerity measures, budget cuts and tax hikes deepened the recession and spiked unemployment. In every meeting this week, including with the president and congressional leaders, Kenny has pounded home the message: With help from its friends and continued investment, Ireland’s coming back.

He did the same last night at a black-tie charity dinner with politicians and corporate CEOs.

ENDA KENNY: Please stay by the side of Ireland. We have now got a new mandate, a new set of priorities, a new — a new commitment, a new energy to face down the challenge that our country faces economically.

MARGARET WARNER: Kenny made no bones about his aim when we caught up with him yesterday outside his Washington hotel.

ENDA KENNY: Well, what I want to say is, first of all, Ireland’s open for business. We want to restore our international reputation, which has taken some hit in recent years. We want to say to the American people we will work with the United States, as we always did. We want to do business both ways across the Atlantic.

MARGARET WARNER: But Kenny needs to woo Europe more than he needs to charm America. As the E.U. struggles to keep Ireland and other debtor members from bringing down its common currency, the euro, Kenny is on a campaign to convince his E.U. counterparts that the interest rate on Ireland’s bailout package is too high.

ENDA KENNY: Is it feasible for the Irish people to continue to pay what we regard as penal rates of 5.8 percent in recapitalizing our banks?

The problem and the legacy that we have been left with from the previous administration makes it very difficult for the people to actually be able to pay their way to grow our economy, to trade our way out of these difficulties. So, I have been explaining that to our colleagues in Europe.

MARGARET WARNER: Lara Marlowe, Washington correspondent for The Irish Times, says Kenny needs Europe’s help to pull Ireland out of its 15 percent unemployment rate slump.

LARA MARLOWE, The Irish Times: He needs a little bit of relief on the interest rate, so that the standard of living doesn’t continue to go down, so that they can actually sort of kick-start a recovery, get the economy going.

MARGARET WARNER: But it’s been an uphill struggle. At Kenny’s first E.U. meeting last week, Germany’s Angela Merkel and France’s Nicolas Sarkozy said they would consider easing the bailout interest rate, but only if Dublin will raise the very low Irish corporate tax rate that has attracted so many foreign companies.

Merkel said as much to reporters afterwards.

ANGELA MERKEL, German chancellor (through translator): It will be very clear that there always needs to be some sort of quid pro quo.

MARGARET WARNER: So far, Kenny is pushing back.

ENDA KENNY: The 12.5 percent corporate tax rate is fundamental to Ireland and will not be changed. Want to give absolute clarity on the language around that.

We have always supported our European colleagues over 40 years, and we want to continue to do that. But we have got a problem here. And I want to make it clear, and I have made it clear to our European, other leaders, Ireland wants to pay its way. Ireland wants to play its part. Ireland will live up to its responsibilities. But we need some assistance in getting to that target.

MARGARET WARNER: Marlowe says it’s an article of faith among the Irish public of all parties that if the corporate tax rate goes up, U.S. and other multinationals might pull out.

LARA MARLOWE: It would be a huge comedown for him to budge on it. It was part of the election campaign. He just came to office. He’s got to stick with it.

MARGARET WARNER: She believes Kenny is also calculating that, as much as Ireland needs a generous Europe, Europe needs an Ireland that doesn’t default on its debt.

LARA MARLOWE: And the consequences for the rest of the euro group would be enormous. So, France and Germany, who are the two powerhouses of Europe, cannot afford to let that happen. Ireland is asking for Europe to share the burden. And, if they won’t share in the responsibility, obviously, the danger of a default is much greater.

MARGARET WARNER: It’s a bargaining chip Kenny is likely to try to play when E.U. leaders gather for a summit on Europe’s sovereign debt crisis in Brussels late next week.