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Q&A: What did Ireland win from the EU talks?

Members this morning signed off on a €1.8 trillion package amid the coronavirus pandemic

The 27 member states of the European Union signed off on Tuesday morning on a €1.8 trillion package to fund the next seven years of spending and inject funds into struggling economies amid the coronavirus pandemic.

How well has Ireland done from the negotiations in the European Council? There are a few significant wins, some uncertainties, and despite reassurances from the Government farmers are concerned they will end up taking in less in subsidies than they do now.

Brexit bonus

One significant win Ireland argued for along with a group of other states heavily affected by Brexit, particularly Belgium, is a reserve fund of €5 billion that would be available for the sectors and countries worst hit by Britain’s exit from the EU.

Sweeping changes demanded by Britain are expected to hit the Irish economy the hardest of all member states from January 1st next year irrespective of whether a deal is reached or not, meaning Ireland should be in line for a significant proportion of the funds.


Customs clawback

Member states collect common single market customs duties and levies on imports. Currently, national governments keep 20 per cent of the revenues collected for themselves. The European Commission had initially proposed to reduce this to 10 per cent, but Ireland along with the Netherlands and other member states successfully argued against this. It was ultimately increased to 25 per cent.

What about the farmers?

Irish sources say that the deal protects the Common Agricultural Policy budget for Ireland, and that the negotiations have successfully overturned cuts that were proposed two years ago.

But the Irish Farmers’ Association (IFA) says that despite changes and an extra €300 million secured for Ireland, farmers will still be in line for what it estimates is a 9 per cent cut in subsidies based on 2018 prices.

The picture is complex. In a bid to get a group of thrifty northern states to agree to the deal, a number of programmes proposed by the commission were cut. Among these were research funding, business investment incentives, health and epidemic preparedness funding, climate transition subsidies, and a cut in rural development funds to €7.5 billion from an initially earmarked €15 billion.

To soften the blow, some member states got extra money: Ireland was allocated €300 million.

But the IFA is concerned this is not enough because in the next seven years payments to the farmers that currently get the lowest amount per hectare in the EU are due to be increased. This comes at the expense of the better-paid farmers, Irish farmers among them.

The Government can also top up farming subsidies in various ways if it chooses to, so the overall picture is uncertain.

Change to calculation of need

Ireland had argued for a change to the system of calculating which member states needed most recovery funds. The initial calculation was entirely based on past data, including economic growth and employment figures, meaning Ireland was due for a relatively small amount of €1.9 billion in recovery fund grants due to its strong performance in recent years.

Ireland and a group of other member states successfully argued the need for funds be based not solely on the state of economies when they entered the crisis but also on economic data showing the real effect of the pandemic. The system was changed so that how national economies have fared will be taken into account to calculate need when recovery funds are given out in 2023.

Grants reduced

Ireland had argued in favour of the initial plan for €500 billion to be given to member states without the obligation for national governments to directly repay it, focused on the worst-hit member states. When the so-called frugals Austria, Denmark, the Netherlands and Sweden pushed hard for reductions to the amount of grants, Ireland advocated they be at least retained above €400 billion. Ultimately they were cut to €390 billion. The overall recovery fund package remains at €750 billion, with €360 billion to be constituted from loans.

An overall recovery

Taoiseach Micheál Martin argued strongly in favour of agreeing an ambitious package to stimulate the overall EU economy, which would benefit Ireland in turn. Because of the interconnectedness of EU member states, which all export to each other, Ireland’s recovery relies on overall European economic growth in the bloc, he argued, and an economic disaster would drag all member states down.

Ireland’s economic growth over recent decades means it has developed from being a net recipient overall of EU money to becoming a net contributor to the seven-year budget, which is funded by contributions from member states.

The €750 billion recovery fund is paid for by borrowing by the commission, something that has never been done before. To repay it, the commission has proposed introducing new EU-wide strategic levies such as a plastics tax, a levy on imports according to the carbon emitted in their production and a digital tax.

These proposals are not yet agreed and Ireland is likely to block the digital tax. The borrowing is set to be repaid by 2058. Member states are the ultimate guarantors of the loans, and so would ultimately be on the hook for repayments if all else fails. What percentage would fall to Ireland in that scenario depends on many unknown factors.

Stock markets rallied, and the euro reached a four-month high after the deal was announced, indicating financial markets view the deal as positive for the economic outlook.