European leaders have moved to put an end to the debt crisis by nearly doubling the size of the eurozone bailout fund.
Policymakers gathered in Brussels to hammer out a new funding deal late on Friday. They also agreed to cut the interest rate paid by Greece on its emergency loans.
Ireland’s bid for similar relief failed, sparking angry clashes between Enda Kenny, the new prime minister, and Angela Merkel and Nicolas Sarkozy. The German and French leaders insisted they would agree to ease the terms of Ireland’s €85 billion (£73 billion) bailout only if the government fell into line and accepted a proposal for a common EU corporation tax base.
Ireland’s corporation tax rate is 12.5%, compared with an EU average of about 23%, and it has used the prospect of lower tax bills to lure companies such as Shire and WPP.
Kenny said: “I made it perfectly clear that the [common tax base] in my view was harmonisation of the tax rates by the back door and this would be very detrimental to Ireland and, indeed, to Europe.”
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The eurozone leaders agreed to increase the guarantees they provide to the bailout fund to allow it to raise capital on the money markets.
This will in effect raise the lending capacity of the so-called European Financial Stability Facility to €440 billion from the present €250 billion.
It should ensure the fund is big enough to bail out any more countries that need help, as well as Greece and Ireland. Portugal is considered most at risk of defaulting on its debts, and possibly Spain.
The leaders agreed to cut Greece’s interest rates of about 4% to 5%, as well as extending its repayment period to 7½ years from three years.
George Papandreou, the prime minister, said this would save about €6 billion over the life of the loans.
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Merkel said the measures represented an “important message” about the determination to “fight for the euro’s stability”. Last week, the single currency recorded its biggest five-day drop since the first week of the year, but the show of strength is expected to give it a boost when markets reopen tomorrow.