Paschal Donohoe: “It would be a loss for everyone to enter a subsidy race with the United States”

Just a few hours ago, Paschal Donohoe, still Irish Finance Minister, was re-elected President of the Eurogroup. This time he has had the unanimous support of his colleagues. There was no other candidate. This 48-year-old Dubliner, a great fan of literature, leaves the meeting that all those responsible for the Treasury of the European Union, the so-called Ecofin, are holding to attend EL PAÍS and three other European media. He will soon leave the position of Irish Finance Minister, although he will remain in the Executive of his country and will retain the position that he has just renewed. His first term, released in the summer of 2020, in the first months of the pandemic, has not been placid. It does not seem that inflation, the energy crisis and the war are going to give it a break for the next two and a half years.

Ask. Is the ECB doing enough to combat this very high inflation? Other central banks have been much more aggressive.

Response. Yes, I think it is. And I also fully trust that the European Central Bank will take appropriate measures in the future. If you look at the growth of the euro area after the pandemic, at the components of inflation that we have and it is caused by energy prices, I think that the ECB has made the right decisions and will make the right decisions.

Q. Is there enough coordination between monetary and fiscal policy?

R. What makes this challenge so complex is the need to coordinate monetary, budgetary and energy policy. Therefore, the coordination horizon is broader than before. Now we all have to play our part in next year’s budget decisions.

Q. But are you satisfied with the coordination that has taken place so far, both with the ECB and between the governments themselves?

R. I think we were all operating under emergency conditions. Suddenly, every finance minister faced the risk of being told by companies that if they didn’t act and help them, they were facing an employment risk and a very steep contraction just after spending two years fighting the pandemic. We were acting to deal with the impact of the war and that was justified. If we look at the economic performance of the euro area in 2022 – even though inflation is worse than we expected – given the shock of the first quarter [cuando comenzó la guerra], the economic indicators have been maintained. I think that offers some degree of validation for the decisions made this year. We were in a very risky environment.

Q. How did the ministers receive the Commission’s proposal to refine aid with a double price for electricity and gas?

R. I saw a very clear willingness to recognize and consider the implementation of that type of structure and in the event that governments cannot apply this initiative, look for other ways to better design and calibrate a fiscal response for the coming year. That political and policymaking space will need to be used in the first half of 2023.

Q. Are common financial tools enough for this crisis or is more needed?

R. Existing budgetary tools, combined with the flexibility Member States still have [en referencia a la suspensión de las reglas fiscales], provide the necessary scope for today’s challenges. Funding and existing political consensus carry over into the next generation. That commitment is there to pay for it and to be used well. But the European Union has already made a decision related to the use of existing funds. [en referencia al plan RepowerEU].

Q. So no new money?

R. Some governments are publicly advocating new financing models and new funds. However, the only consensus that exists among finance ministers is around the tools that we have already agreed to use.

Q. Is there a consensus in the Eurogroup on how to respond to the US anti-inflation law?

R. There is agreement on three different points at this time. The first is that you have to concentrate on diplomacy, not on increasing difficulties. Second, we all support the work of the Council for Technology and Commerce to work with the United States. And third, for now, Eurogroup ministers have recognized that this is an important economic step that Europe must take into account. There are different views on what our response will be. It’s always like that when we tackle an important issue like this.

Q. Is there a risk that Europe will start a subsidy race with the United States?

R. We already have an extensive grant system in the Recovery Fund. We have to evaluate our efforts in the context of the law funds for the reduction of inflation [en Estados Unidos]. It would be a loss for all of us to go into subsidy competition with the United States when taxpayer money is so precious. That is why diplomacy and participation in the Council for Trade and Technology are so important.

Q. At the end of the Eurogroup meeting, you and the Commissioner for the Economy Paolo Gentiloni talked about having the reform ready in March. Is this timeframe not very optimistic given the skepticism shown by the German minister?

R. Yes, the deadline is demanding. However, by next March, we will have to make significant progress on economic governance. And the reason is that we will already be in the second quarter of 2023 and the governments must make their decisions for the 2024 budgets. So, although the calendar is hard and demanding, in reality we have no choice but to have advanced. We have a lot to do in January, February and March.