Speech by Eurogroup President and Minister for Finance, Paschal Donohoe TD to European Movement Ireland

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Introduction

Good morning.

I am delighted to speak to the European Movement Ireland. The international European movement network of which you are a part was established over 70 years ago and you, along with your sister organisations, have spent the years communicating and inspiring ordinary citizens to learn about and engage with our European community; our union of nations.

This work remains as important now as when you began your work in 1953 when Ireland was looking into the nascent European Coal and Steel Community.

A very different Ireland, and a very different Europe.

Whilst no one could have seen then the enormous social, political and economic changes that would have transformed our world in the time since, I think it would have been equally as unforeseen to your members in 1953 how transformative membership of the European project would be for Ireland.

We are part of what the economist Martin Sandbu, calls:

The deepest voluntary project of globalisation the world has ever seen.

And this has not only been transformative for us as a nation. It has been transformative for us as citizens; for our feeling of what it is to be Irish.

Like many others, I see my Irish and European citizenship as closely interconnected, mutually beneficial aspects of my sense of nationality.

As such, it is a deep personal honour for me to hold the prestigious European position of President of Eurogroup as well as that of Irish Finance Minister.

Today I would like to reflect on how my experiences as an Irish and European citizen help me in my role as Eurogroup President.

To do this, I am conscious that we are all fatigued by endless webinars so I will briefly set out my role as Eurogroup President, the objectives of the Eurogroup, what they mean for Europe and Ireland in policy terms, and then reflect on my approach as Eurogroup President, and how it can be applied to other European work.

Then I look forward to taking your questions and hearing your thoughts.

Eurogroup President - Role

So, to begin, I was elected President of Eurogroup last July for a two and a half year term.

As many of you will know, Eurogroup is an informal body of Euro Area Finance Ministers. Our main goal is achieving consensus on economic policy through a focus on political and strategic discussions. This is somewhat different to ECOFIN’s more legislative role and the latter is also explicitly an EU27 body.

Eurogroup is a political body, with political processes and political objectives.

As President, I engage actively with the EU institutions. This includes the ECB, the Commission, the ESM and the Council. We also have regular ‘inter-institutional actor meetings’, or in more colloquial terms – a ‘4 Presidents call’ - that involves the Presidents of the Council, Commission, ECB and myself. All of these feed into how we operate.

Another key part of my role is to represent Eurogroup at the European Council, where I presented to our leaders only last week on the international role of the euro.

I also attend G7 meetings - again representing the Euro Area. These are currently chaired by the UK with a particular focus at the moment on the common challenges created by COVID-19 and the global economic response to it.

We are also fortunate in that we can expand Eurogroup into a more inclusive format, depending on the topic at hand. This can involve opening up discussions to include non-Euro Area countries but also in inviting external speakers to participate on selected topics. This has included representatives from the WHO and European Centre for Disease Control (ECDC) to get their take on COVID-19 but also briefings from other experts depending on the topic.

Eurogroup Work Programme

The work of Eurogroup is underpinned by a very detailed work plan. We have five broad objectives:

(i) Economic and fiscal policies to support recovery and long-term growth;

(ii) Use of banking union as a source of stability and growth;

(iii) Capital markets union (in terms of the Euro Area aspects);

(iv) The euro as a digital currency; and

(v) The international role of the euro.

I won’t discuss all of these today as I want to focus primarily on the very first item – economic and fiscal policies that support recovery – as I think it illustrates some of the most important lessons in how we seek to influence and participate in European policy making.

Euro Area Economic Response to COVID-19

In normal times, the aim of Eurogroup is to ensure the close coordination of economic policies across the Member States so as to promote stronger and more resilient growth. Obviously, our primary focus now is on economic recovery, and coordinating our actions to drive an inclusive and strong recovery as opposed to just a temporary rebound.

This distinction (between recovery and rebound) is a particular priority of mine and it is reflected in the output of the Eurogroup to date. To be clear, as the vaccination process gathers momentum and restrictions ease, we will see an automatic upturn in activity. We saw elements of this last summer in Ireland and in the Euro Area, with very robust Q3 figures.

In the coming months, we will see a resurgence in domestic demand as restrictions ease and we can already see elevated levels of household savings. However, we need to ensure that the upturn is long-lasting and sustainable. This is at the heart of our income and business support measures – both in Ireland and in the Euro Area.

The relevance and value of this economic strategy is vital in these very uncertain times. It is so helpful for all of us at Eurogroup to have clarity that every Member State at the table has adopted a supportive budgetary stance that feeds into the real economy.

This is vital for our business owners and employers as they are more likely to keep people in employment and to invest in their business if they know that not only their own country but all of the other countries in our economic union have a supportive fiscal stance. The reality is that the economic confidence effects this creates are greater than the sum of each country’s supportive fiscal stance.

The European response to this crisis has been extraordinary, in every sense – in terms of its size, speed, and coordination. I have repeatedly highlighted how the EU has stepped up to the challenge posed by COVID-19 and also Eurogroup’s leading role in this.

Just to highlight some of what has been done – we built up the necessary level of political momentum to set up the Recovery and Resilience Facility (RRF). The original idea for it was agreed as part of the (inclusive) Eurogroup statement of 9 April 2020.

Eurogroup was also supportive of the activation of the general escape clause, for the first-time last March. This sent a clear and early signal to the markets that this crisis, and our response to it, would be very different.

Three critical key safety nets were also quickly agreed at Eurogroup as a direct counter to COVID-19 - to the value of €540 billion; SURE, the ESM’s Pandemic Crisis Support and the EIB’s pan-European guarantee fund.

These schemes are fully operational and the success of SURE in particular – in terms of Member States accessing it and also in respect of how oversubscribed bond offerings have been – speaks volumes. In real terms, SURE has supported furlough schemes in 18 EU countries benefitting around 21.5 million employees and 5 million self-employed, or a quarter of total employment across the recipient EU countries.

These aren’t abstract ‘big numbers’. These represent real people, real workers and real businesses. The lifeblood of our economies and our societies. SURE and other Government schemes are protecting incomes, preventing long-term economic scarring and paving the way for a sustainable recovery.

More broadly, the centrepiece of the EU response to date has been Next Generation EU and the Recovery and Resilience Facility (the RRF). This was a momentous step for the EU to take. While just over a year ago, this crisis would have been unimaginable, I think the EU’s response to it has also been equally unimaginable.

I should also recognise what national governments have done, as well as the role of the ECB.

There is no question that fiscal and monetary policy have worked hand-in-hand. This is something that wasn’t always the case – all we have to do is look back at previous crises.

From the outset, the ECB has been decisive in its monetary policy actions notably through the Pandemic Emergency Purchase Programme. Its decisions have been vital in keeping yields low and in providing liquidity. Ithas helped to instil an air of confidence and certainty at a time marked by uncertainty. This was again in evidence just two weeks ago with the most recent monetary policy decisions.

National governments have also stepped up and have taken unprecedented steps to protect incomes, lives and livelihoods. We have seen record levels of government borrowing to facilitate the operation of our automatic stabilisers and new and innovative discretionary income support schemes for individuals and businesses.

While estimates vary, last year close to 8% of GDP was spent supporting our Euro Area economies, with an additional 19% of GDP in various types of liquidity support.

All of these decisions have helped crisis supports flow in an efficient and effective manner.

Reflecting back on what has been done - the speed, breadth and depth of decision-making stands out. Economic policy has been bold, agile and effective with job losses far less than what we might have imagined given the scale of the economic shock.

In recent weeks, and as I mentioned earlier, we have seen a number of comparisons on the respective sizes of the EU and US economic responses.

These arguments miss the point.

They also deflect from what each country is doing. Aside from obvious differences between the US and EU countries, there are inherent differences in our economies, in our social protection systems and in our longer-term objectives.

Ultimately, both the EU and US economies are injecting huge amounts of resources into battling COVID-19. These stimuli will also mutually reinforce one another.

Eurogroup Impact on Fiscal Policy

I would like to give you an insight into how Eurogroup practically impacts on the budgetary policy of the 19 Euro Area Member States, based on our Eurogroup meeting this month.

At Eurogroup we have regular discussions on economic policy. Usually, these debates occur at particular points in the year centred on the European Semester – for example around budget time and mid-year, following Stability and Convergence programmes and the Commission’s spring package.

However, last month we issued a very strong statement, on which there was unanimity. This was driven by a feeling that we needed to reaffirm our economic messaging in respect of budgetary policy coordination, not just for this year but also in terms of 2022, so that Member States could prepare budgets that continue the vital economic supports to citizens and businesses.

There are a number of elements to it, but the key takeaway was the absolute consensus on the need for supportive economic policy right across the Euro Area.

In simple terms, we reaffirmed that there will be no premature withdrawal of budgetary support.

Eurogroup will also issue further guidance later in the year as new data and information comes in. Over the summer, we will take the economic policy conversation forward, with a particular focus on 2022.

Budgetary policy will need to remain flexible so as to win the battle against COVID-19. In fact, this was at the heart of the second part of the statement – where we emphasised the need for budgetary policy in time to pivot towards more targeted supports.

We also explicitly recognised the challenge posed by higher levels of indebtedness - an inevitable by-product of the exceptional supports at present – and the need to address this in time through differentiated and more sustainable medium-term strategies.

We also stressed the need for ambitious reforms and productive investment, supported by the RRF. The latter offers a unique opportunity for Member States to deliver stronger, more sustainable and inclusive growth while prioritising the green and digital transitions.

Key Themes / Lessons from Ireland’s Experience

The agreement of the Eurogroup statement two weeks ago, and indeed my first six months in the role, have allowed me to reflect on key lessons for advancing policies through the Eurogroup.

In very simple terms, these could be summarised under three “Cs”:

Consensus;
Constant Dialogue; and
Create Momentum.

Consensus

In terms of consensus, I am conscious that many of you have considerable experience and insights into European decision making and the importance of consensus, in terms of forming agreements that stick across 27 sovereign Member States. Consensus is vital as it means that Member sSates take ownership of decisions.

Constant Dialogue

The building up of consensus can only happen through constant dialogue, particularly in times of extraordinary pressure on Governments, such as we are living through now.

The sharing of experiences and perspectives at Eurogroup engages Ministers in our discussions and builds up understanding on what are remarkable similar challenges that we all face.

The similarity of these challenges are illustrated by the closure of hospitality sectors, such as ski resorts in Austria or sun resorts in Spain. We are all working to select the best supports for those impacted, such as job retention schemes. Often, the only difference is timing.

Another element of constant dialogue is the preparation for Eurogroup to ensure relevant political discussions that feature a high level of engagement. In practical terms for me, this means that every Eurogroup meeting is preceded by numerous calls to my ministerial colleagues and their teams.

It is one of the means I use most to help understand the issues at play for each Member State. These calls also allow us to build the pillars of rapport and understanding upon which all political agreements depend on.

Create Momentum

In advancing Eurogroup to agreement on difficult issues, it is important to create a sense of inevitability that agreement will be reached by framing the objectives in political terms that we all agree on and can endorse. In present circumstances, it is how our decisions assist the provision of vital income supports to citizens and companies. Then we can turn to working out the technical elements of the agreement.

The success of this approach is illustrated by our end-November agreement on ESM Treaty Reform and the early introduction of the backstop to the Single Resolution Fund, and also this month’s agreement on a supportive fiscal stance. These agreements were achieved as there was unity of purpose from Ministers on how best to help European citizens.

Conclusion

To conclude, there is no doubt as to how exceptionally seismic this shock has been. COVID-19 has been a tremendous challenge to all.

In fact, we face a virus that uses the same qualities to infect that we rely on in Europe; our interconnectedness, our interdependence and our interconnectivity.

So there is an inherent symmetry in all this. However, there is also a tremendous sense of symmetry in our response.

Europe’s response to this crisis has been different. In a thousand ways. Critical to this is the fact that we have the political processes and structures in place to support one another. This, I feel, was the key difference this time.

We are also building new instruments, new safeguards and new tools. Some of these are already operational (SURE), while others (such as the RRF) are underway and will soon be making a real and substantive difference in safeguarding the recovery.

We have achieved an unprecedented level of coordination on economic and fiscal matters over the past year.

All of this is based on the clear goal of supporting citizens, businesses and countries in a time of great need.

Coming back to economist Martin Sandbu’s writing on the EU:

“To align the political values of different nations, whether in the broad sense that the European project seeks or in a specific area… is not a mere technical policy challenge.

Successfully melding openness and domestic satisfaction requires statecraft.”

This is what drives our work at Eurogroup.

And it is both worth the effort and producing results.

Thank you.

ENDS