Donohoe indicates he would support easing strict EU rules on state aid

Minister says first indication of how economy is being impacted by war will be in March exchequer returns

Minister for Finance Paschal Donohoe has indicated he would support easing strict EU rules on state aid to private companies in light of the crisis caused by Russia's invasion of Ukraine.

Speaking as he finished his St Patrick's Day trip to London, Mr Donohoe said it was "quite likely" there would be a revision of the framework for state aid – which is usually tightly policed by Brussels in order to preserve market competition – in the coming weeks.

“From my point of view I of course would support any change in state aid rules that did make it easier to preserve our economic performance as we’re dealing with the consequences of the war,” he said.

While he emphasised the need to maintain the wider state aid rules, notwithstanding the impact of the war, he said assistance for the energy sector in particular could be looked on favourably, which in turn could help with the cost of fuel to consumers.


“I want that state aid framework to be preserved, but I do think particularly in the area of energy there may well be a case for some more flexibility there,” he said.

Mr Donohoe said there was not yet any indication of the war’s impact on the Irish economy, with strong data for the start of the year. He said the first indication of how the economy was being impacted would be in the March exchequer returns.

A more detailed analysis of how the rampant inflation and market volatility is impacting the economy is due in the Stability Programme Update in April.

“What we are looking at is what will be the impact of the higher levels of inflation that we’re now facing, and the issues that are now caused by the performance of the supply chains, what impact that will have on the performance of our economy,” he said.


Mr Donohoe said he would be watching closely whether firms continue to invest, and if households continue to unwind the massive savings they accumulated during Covid. A retrenchment in investment or spending could indicate consumer sentiment is being impacted by uncertainty associated with the war.

“My clear message, from an investment point of view, is that if an investment plan made sense before the war and made sense after Covid, it will still make sense now.

“What I will be looking for signs of is whether the impact of the war is in any way changing people’s decisions and companies’ decisions about how to either manage their savings or their balance sheets,” Mr Donohoe told The Irish Times.

On Friday he met with his British counterpart, chancellor of the exchequer Rishi Sunak. The pair discussed the challenges facing their respective economies arising from the increased cost of living and the application of sanctions.

While arguing that the Irish economy continues to perform strongly, Mr Donohoe said it was “very, very difficult to form an exact view on what will happen later in the year”.

"The Irish economy, like any other economy in Europe, is currently facing a higher level of uncertainty than we would have thought possible in even January," he said.


“My message to people, certainly to businesses at the moment, is there is every reason to continue with existing investment plans,” he said.

Asked about any vulnerabilities to the tax take, he said it remained strong, but that there was a risk of VAT being hit if people hold off on spending or investment.

“Because of the higher cost of living that many are facing at the moment, it in turn impacts on spending decision they make, consumption and by those things changing in volume, that then has an impact on our VAT collection. That at the moment appears to me to be the most likely transmission mechanism into our tax collection.”

However, he said there was no evidence of that so far.