Irish candidate for Eurogroup chief puts recovery top of agenda

Ireland’s Paschal Donohoe is in the hunt for the Eurogroup top job | Paul Faith/AFP via Getty Images

Irish candidate for Eurogroup chief puts recovery top of agenda

Paschal Donohoe tells POLITICO that Eurogroup can be the place to strike a deal on EU-wide recovery funds.

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The next Eurogroup president needs to focus foremost on getting the EU’s recovery fund in place to overcome the pandemic’s economic fallout, Ireland’s Paschal Donohoe said.

Donohoe spoke in an interview Thursday about what he’ll do if elected July 9 to head the group of his fellow euro area finance ministers, one of Brussels’ most influential posts.

Donohoe, who spoke over video from the Irish ministry, faces stiff competition. Spain’s Nadia Calviño and Luxembourg’s Pierre Gramegna are also vying for the top job, which sets the financial policy agenda for the single currency union. The winner will replace Mário Centeno three days later for a term of two and a half years.

But the 45-year-old Irishman — who’s been finance minister for three years — is looking to bring together not just the 19 official members of the Eurogroup. He said its behind-closed-doors meetings could be a venue for all of the EU27 ministers to informally work out the bloc’s post-pandemic recovery plans.

Those efforts must come first, he said. Everything else, such as talk of introducing a eurozone budget or shoring up EU bank deposits, will have to wait.

“There’s a degree of sequencing that we have to be realistic about,” Donohoe told POLITICO, sitting at his desk in Dublin, the hometown where he served on the city council before joining the parliament as a representative of its central district.

“I think the deepest role the Eurogroup can play across the coming months is [to] get consensus on the future recovery fund.”

His comments come as EU governments remain split over the European Commission’s €750 billion recovery blueprint. The initiative proposes to borrow money on capital markets and hand two-thirds of it in grants to countries in need, starting in January.

Government chiefs are to trying for agreement at a two-day summit July 17-18 in Brussels, as the EU economy continues to reel from months of lockdown to contain the coronavirus outbreak.

If and when they reach a political deal, it’ll be up to their finance ministers to iron out specifics, determining how governments can get money and under what conditions.

Doing that behind closed doors in the Eurogroup, in Donohoe’s view, would help speed up the process for approval in Economic and Financial Affairs Council (Ecofin), where national ministers debate legislative files in public.

The Brussels legislative machine needs a deal in Ecofin before the European Council, representing the national governments, can work out final legislation with the European Parliament. The process usually takes time that the EU doesn’t have, as fears of mass unemployment and bankruptcies grow stronger each month.

“You have a far stronger chance of being able to reach that agreement through the Eurogroup,” said Donohoe, who’s in his third government post after joining the parliament in 2007, following a career at Procter & Gamble in Britain.

“It’s the length of the meeting, the freedom of people’s ability to talk and it’s the aptitude and the desire to gain consensus within that particular group,” he said.

Banking (dis)union

Donohoe is hoping ministers’ appetite for dealmaking will gain momentum after the recovery package is in place.

Some safeguards for the eurozone’s banking industry stand as unfinished business, chiefly a shared guarantee for people’s deposits — something on which Centeno struggled and that he called on his successor to address.

Reaching consensus on the “European Deposit Insurance Scheme” (EDIS) will prove difficult after years of stalemate. Many Northern countries are demanding more assurances that Southern banks are reducing their risk before agreeing to pool national funds.

Germany’s finance minister, Olaf Scholz, proposed a way to break the deadlock last November. The position paper included a list of prerequisites to EDIS, such as harmonizing insolvency law and a minimum corporate tax rate.

“[This] would be the kind of initiative that I think could give this project further impetus,” the Irishman said.

Donohoe doesn’t suggest such a breakthrough on a controversial eurozone budget soon, though.

Centeno spent late nights of negotiations to agree on a €13 billion cash pot, officially known as the budgetary instrument for convergence and competitiveness (BICC), designed to fund cross-border projects among the eurozone’s 19 countries over seven years.

The Commission withdrew the bill and used its legal framework for the recovery fund, leaving the budget’s future in doubt. Centeno has said his successor would find it easier to bring the cash pot back after all the hard work that went into it.

Fiscal capacity

Yet, Donohoe was noncommittal about when the budget plans could resurface.

“I would certainly bring back the debate and the discussion that we had in relation to the BICC and the future of it,” he said. “But I think across the short term to medium term, our future is going to be on the recovery fund.”

It’s also worth considering the merits of introducing an EU “fiscal capacity” once talk of the eurozone budget returns, Donohoe continued, referring to a financial shock absorber that can cushion national crises.

Any access to this pot of money would be “highly conditional” and countries would first have to build up their own buffers, he said. Ireland, for example, introduced a €1.5 billion rainy day fund last year amid looming fears that a no-deal Brexit would rock its economy. There are also plans in place to use some of that money this year to deal with the coronavirus.

The threat of a hard Brexit still looms. British and Commission officials are still negotiating the terms of a cross-Channel free-trade agreement before the U.K. exits its transition period in EU law at the end of the year.

But Donohoe said Brexit will pose little distraction if he’s elected Eurogroup president, considering it’s a political issue he’s been dealing with since Britain’s referendum in 2016.

“We are now at the point that the consequences of Brexit no longer just sit with Ireland,” he said. “I think that would help as my role in as president of the Eurogroup because of the ample experience that I’ve now developed in dealing with the challenge of Brexit.”

This article is part of POLITICO’s premium policy service: Pro Financial Services. From the eurozone, banking union, CMU, and more, our specialized journalists keep you on top of the topics driving the Financial Services policy agenda. Email pro@politico.eu for a complimentary trial.

Authors:
Bjarke Smith-Meyer 

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