Ireland’s Donohoe sets out to be the bridge to unite a divided eurozone
New Eurogroup president is in a unique position to speak to both north and south,
Abun fight in Brussels is on the cards as divided leaders try to thrash out a deal on the EU budget for the next seven years and a €750bn (£676bn) virus recovery fund.
Into this fray steps Paschal Donohoe, the new president of the Eurogroup, made up of finance ministers from the 19 countries that use the euro.
He is likely to position himself as the bridge between the fiscally conservative north and the southern countries that were bailed out in the eurozone crisis and have been hardest hit by the pandemic. It is the same approach that won the Irish finance minister his position in Europe and is one reason the Irish have been extending their grip on the continent’s institutions: they have managed to build ties with the Baltic and Benelux countries in the aftermath of Brexit.
Donohoe’s compatriot Philip Lane, the former Irish central bank governor, is the chief economist of the European Central Bank, while the former Irish environment minister Phil Hogan is the European trade commissioner.
After weeks of intrigue Donohoe, a Dubliner, on Thursday won a secret ballot of the 19 ministers in the Eurogroup, beating the favourite, Spain’s Nadia Calvino, whom the EU’s four biggest economies backed. She claimed an unnamed member reneged on their pledge to vote for her.
His victory was significant in part because he will have some input on steering the group through what is expected to be a recession of historic depths – the eurozone economy is set to contract by a record 8.7pc this year. However, Donohoe has also strongly criticised deficits, increases in government spending and a potential EU digital sales tax, of which Calvino was a strong proponent.
“I’m deeply conscious the citizens of Europe are looking at where their national economies now stand, are looking at the European economy, and have become concerned, have become fearful again for their futures, for their jobs and for their incomes,” he said.
“As great as the challenges are, and I know how deep they are, I am absolutely confident that with my colleagues in the Eurogroup, with our governments, we have the ability and we have laid the foundations to overcome these challenges.”
The influence of the Eurogroup president has waned under the past two incumbents. The role now is more about building consensus in a group that has become notorious for being constantly divided.
As Brussels veteran Andrew Duff, of the European Policy Centre think tank, puts it: “The complexity of the budgetary problem of the EU is so great that Donohoe’s going to find it difficult to be a bridge between the divided gaps and there are plenty of them. There are the poor and the rich, the federalist and the nationalist, the farmers and the progressives, there’s east versus west, north versus south, and the institutional clash between the commission, council and parliament.”
But Ireland’s position as a “poster child” for the countries that faced the worst of the eurozone debt crisis then managed to use their bailouts – however painful – to recover, gives it an ability to relate to both peripheral and more fiscally conservative members.
“It can speak to both sides, which not many are in a position to do,” says Federico Santi of the Eurasia Group.
“At the same time Ireland does share many of the characteristics of the northern Baltic countries, in terms of having a strong preference for a low-tax regime and being a small, competitive country with a fairly open economy.” Santi adds that this openness has attracted large multinational firms to Ireland, giving it a global role, hence in part Hogan’s appointment as trade commissioner.
Cynics also claim that the advance of the Irish in the EU is the bloc’s way of showing Britain what it’s missing, but as Santi points out, Ireland is one of the EU countries most exposed to the risks of Brexit going wrong.
No small task awaits Donohoe: persuading the Eurogroup’s net contributors to open their coffers while asking its net recipients to accept conditions on the help they get. He may well need the luck of the Irish.