Donohoe warns of challenging times ahead as he is re-elected to Eurogroup

Minister for Finance unanimously elected to steer powerful group through economic headwinds in second term

Paschal Donohoe has been unanimously re-elected president of the Eurogroup by his fellow finance ministers of the euro area, as he warned the currency zone faces “difficult times” ahead.

“I am very privileged that all ministers decided to support me in the work that awaits the Eurogroup,” Mr Donohoe said, telling reporters that the euro zone faces challenging economic times with faltering growth and high inflation due to the fallout of Russia’s invasion of Ukraine.

Asked about the benefits of having an Irish minister in the role, Mr Donohoe said the fate of the Irish economy was strongly linked to that of the euro area.

“What I would say to Irish voters is that the Irish economy is a small, open economy and our prosperity, our security and our growth is exceptionally influenced by what happens within the euro area, with whom we share a currency,” he said.

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“The growth of the euro area, the strength of the euro, are all vital foundations in the ability of the Irish economy to grow. What I hope therefore to do as a person who represents a country whose prospects have been transformed by the European Union, is by playing my role in the growth and security of the euro in the years ahead, in turn play a role in the growth of the Irish economy.”

Mr Donohoe had emerged as the only candidate, easing his path to take a second term of two and a half years in the post, which involves chairing the meetings of the finance ministers of euro-using countries.

He is expected to move to the role of Minister for Public Expenditure and Reform in the coming Government reshuffle, meaning that Fianna Fáil’s Michael McGrath would likely attend Eurogroup meetings as Minister for Finance and representative for Ireland.

Turbulence ahead

The ministers of the 19 countries that use the euro confronted a bleak economic outlook as they met to discuss the budgetary outlook, high energy prices, and inflation.

The European Commission has forecast that the EU will tip into recession this winter, before a low level of growth resumes next year.

The executive’s economy chief Paolo Gentiloni said that while inflation appears to have peaked, “we should be very cautious”, adding that the decline inflation would be “very, very gradual” in 2023.

He expressed concerns that spending by EU governments to help households with energy bills had been too broadly applied, and could risk further fuelling inflation, while increasing public debt.

“That is why we encourage member states to improve the targeting of these measures,” he said, recommending the replacement of sweeping energy supports with payments targeted towards the most vulnerable households, and that ensure “incentives for energy saving”.

The meeting marked the end of a long road for Greece, as Mr Donohoe announced that reforms put in place by Athens meant the conditions have now been met to release the last set of debt measures to the Greek economy.

Mr Donohoe described it as a “historic moment” and a “very important milestone” for Greece, as it finally concludes the last of the procedures and scrutiny place on its finances since its bailout during the last global financial crisis,

“Greece is now standing very firmly on its own feet again and as part of the European family in the standard and common fiscal and economic EU co-ordination procedures,” Mr Donohoe said.

The Eurogroup had a powerful role in brokering bailout agreements during the last financial crisis, and its influence may grow again if the expected economic turbulence of the coming year threatens the financial stability of member states.

Mr Donohoe is set to preside over the group at a time when it will also confront proposals to reform the European Union’s fiscal rules, one of the policy areas on which countries are most sharply divided.

The members of the Eurogroup will increase to include an additional finance minister on January 1, when Croatia is to introduce the euro as its currency, becoming the euro zone’s 20th member state.

Naomi O’Leary

Naomi O'Leary

Naomi O’Leary is Europe Correspondent of The Irish Times