Paschal Donohoe re-elected Eurogroup President…

Paschal Donohoe has been the Irish Minister for Finance since June 2017 and since then has presided over one of the most successful economies in the world. He was elected President of the Eurogroup, comprised of Eurozone Finance Ministers, in July 2020 and his term was due to expire in January 2023.

Under the coalition government agreement between the Fianna Fail, Fine Gael and the Green parties negotiated in June 2020, the two most senior jobs in Government, Taoiseach and Minister of Finance are due to rotate between Fianna Fail and Fine Gael next week, with Leo Varadkar replacing Michael Martin as Taoiseach. Similarly, the Minister of Public Expenditure and Reform, Michael McGrath (FF) is due to rotate with Paschal Donohoe (FG) as Minster for Finance.

As the Eurogroup is made up of EU Finance Ministers, this would lead to Michael McGrath replacing Paschal Donohoe as Ireland’s representative on the Eurogroup. However, Donohoe has been an able and popular President of the Eurogroup, and now Eurozone Finance Ministers have re-elected him as President unopposed. This means he will remain on the Eurogroup as President, while Michael McGrath represents Ireland as Finance Minister.

The only time a similar arrangement was agreed previously was when Jean-Claude Junker became Luxembourg Prime Minister but remained on as President of the Eurogroup with Luxembourg being represented by its finance minister. However, at the time the Eurogroup was much smaller, more informal, and less influential, and it seemed unlikely that Donohoe would be able to remain in the Eurogroup if he was no longer Ireland’s Finance minister.

His unanimous re-election as President of the Eurogroup is thus a tribute to his negotiating skills in achieving consensus within the Eurogroup despite widely differing national interests and ideological tendencies. He is unusual among Irish politicians for being widely read and has written favourable book reviews of Thomas Piketty and other political and economic thinkers for the Irish Times.

Fine Gael is the most conservative party in Ireland and so it is remarkable he has risen so far in a party not given to Marxist analysis or leftist economic policies. He has pursued proactive Keynesian policies while in office and has helped to make the Irish income tax code and social welfare system the most progressive in the OECD. Before tax incomes in Ireland are amongst the most unequal in the OECD, but after tax income inequality is about average.

Having sought to safeguard Ireland’s position as an attractive location for foreign direct investment he has nevertheless overseen the elimination of corporate tax loopholes like the Double Irish and Dutch sandwich and agreed to a minimum global corporate tax rate of 15%. This removed a major irritant in Irish EU affairs and brought Ireland into line with the OECD consensus.

He is widely credited with maintaining employment and growth and protecting companies and general living standards throughout the pandemic and more recently during the cost of living and energy crises. Employment levels are at an all-time high and the economy is forecast to remain the best performing economy in the Eurozone despite the global slowdown and recession in many other countries, not least in our nearest neighbour and major trading partner, the UK.

It is, of course, easy to achieve all this at a time of booming corporate, income, and VAT tax receipts and relatively low debt servicing costs, which means he has been able to run budget surpluses despite putting €6 Billion away into a “rainy day fund” to guard against the likelihood that falling corporate profitability, especially in the tech sector, will greatly reduce corporate tax receipts in future years.

With so many uncertainties regarding Brexit, the Ukraine war, the energy crisis, inflation, and interest rates, and the global economy, it would be foolish to assume such success will continue indefinitely into the future. But so far Donohoe is credited with having steered a steady course. Ireland has a long debt maturity profile and is expected to borrow only €7 Billion in total next year despite paying off some maturing debt. This is a great position to be in at a time of rising global and Eurozone interest rates. Ireland’s Debt to GDP ratio has already reduced from 120% to 56% over the past 10 years which improves our credit rating, reduces the interest rate at which we can borrow, and makes our overall national debt interest burden much more affordable.

It’s been a long journey from the near implosion of the Irish economy in 2012, and Donohoe has been part of that success story. Hopefully he can help guide the Eurozone to greater success in the future. I have had a letter published in the Irish Independent welcoming his appointment. (Fourth letter down, text also below).

Picking Paschal again shows wisdom of the EU

Paschal Donohoe’s pending re-appointment as President of the Euro Group of Finance Ministers confirms him as one of the most influential figures in the EU, behind only the presidents of the EU Commission, Council, Parliament and Central Bank.

The fact he is likely to be joined by Michael McGrath as Ireland’s Finance Minister will leave him free to focus on consensual solutions to EU problems, with Mr McGrath there to represent Irish interests.

The only time one country has had two members of the Eurogroup before was when Jean-Claude Juncker became prime minister of Luxembourg and went on to become president of the European Commission.

Mr Donohoe’s re-appointment is a big honour for Ireland and leaves us well-placed to influence the future direction of the EU. As the EU member state most affected by Brexit, it also helps to ensure Ireland will not be marginalised on the north-western corner of the union.

The EU faces huge economic and fiscal challenges due to the pandemic, the Ukraine war, the energy and inflation crises, the global downturn and climate change. Many of these issues can only be effectively addressed on a unified EU basis with joint solutions and agreed programmes of action.

As an expert on Thomas Piketty, the leading economist studying inequality, Mr Donohoe is also well-informed on the EU’s internal problems of regional inequality and social cohesion.

What is quite remarkable is that he has managed to achieve the support both of the Nordic fiscal hawks and the Mediterranean advocates of greater EU spending to address those issues.

The EU has been shown to be wise with his appointment.