As a small open economy Ireland is largely dependent on international trade and markets, which makes it economically vulnerable to global crises.
However, being part of the European Union means Ireland can utilise the combined power of 27 Member States for fiscal stability and long-term economic growth, as well as recovery from unexpected financial shocks.
EU membership has helped Ireland transition from economic stagnation in the middle of the last century into a nation with a modern economy based on free trade, foreign investment and growth.
The EU’s Single Market environment, adoption of the euro currency and support from EU economic and fiscal policy coordination ensures Ireland’s economy remains stable and competitive.
Economic response to global crises
Russia’s invasion of Ukraine has posed new challenges for Europe’s economy. The EU and its international partners have condemned this unjust military aggression and imposed tough economic sanctions against Russia.
Russia’s attack on Ukraine began just as Europe was beginning to emerge from the Covid-19 pandemic and the outlook for the EU economy was for a prolonged expansionary phase.
But the war has resulted in upward pressures on commodity prices, supply disruptions and increasing uncertainty that has led the European Commission to revise the EU’s growth outlook downwards, and inflation is expected to rise.
While the situation in Ukraine evolves, the European Commission has adopted a Temporary Crisis Framework to enable Member States mitigate the economic impact of the war by financially supporting severely impacted companies and sectors.
The European Union’s solidarity during the war and recovery from the financial consequences of the Covid-19 pandemic is of vital importance to Ireland, particularly as the country is also impacted by Brexit.
The EU responded to the coronavirus crisis with a recovery package of €1.8 trillion consisting of Europe's long-term Multiannual Financial Framework (MFF) budget and the temporary recovery instrument, Next Generation EU.
The package is designed to power an economic resurgence based on the Commission’s European Green Deal roadmap for a sustainable economy, and accelerate the digitalisation of Europe's economy.
The Recovery and Resilience Facility is the key instrument at the heart of Next Generation EU. To benefit from the support of the Facility, each Member State had to submit national plans to show how they would address country-specific challenges while supporting the EU green and digital transitions.
The socio-economic impact of the pandemic is unprecedented, for citizens, businesses and in particular for the vulnerable in society. The EU has delivered a powerful collective response to cushion the economic blow of the pandemic and to set the foundations for a resilient recovery.
Mairead McGuinness, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union
Ireland will receive an estimated €989 million in Recovery and Resilience Facility grants, of which 42% will support climate investments and reforms and 32% will benefit the digital transition.
Ireland will also receive around €1.2 billion in Cohesion Policy allocations, and just over €8.3 billion in direct payments from the European Agricultural Guarantee Fund (EAGF). There is €2.25 billion available through the European Agricultural Fund for Rural Development (EAFRD) too.
Other sources of EU financial assistance available to Ireland related to the Covid-19 pandemic include:
- €2.5 billion in financial support under the SURE instrument to assist with costs related to the Temporary COVID-19 Wage Subsidy Scheme;
- Schemes worth €10 and €7 million to boost Ireland’s coach tourism and entertainment sectors, which were badly hit by the pandemic;
- The InvestEU Programme provides Member States with long-term funding to companies and to support EU policies in recovery from economic and social crises.
Recovery plan for Europe in Ireland
Ireland’s recovery and resilience plan
SURE, the European instrument for temporary Support to mitigate Unemployment Risks in an Emergency
The EU Budget
The EU’s long term budget usually covers a period of up to seven years and it is called the Multiannual Financial Framework (MFF). The budget is based on proposals from the European Commission that are negotiated and agreed by Member States at the European Council and the Council of the EU. It also has to be approved by MEPs at the European Parliament.
The MMF is used to implement EU policies and the 2021-2027 budget is worth €1,074 billion, although it is supplemented by the temporary €750 billion Next Generation EU recovery package to help repair economic and social damage caused by Covid-19.
The amount each country contributes to the MMF is calculated fairly, according to means. Ireland was a net recipient of the MMF for its first four decades of EU Membership and it is now a net contributor.
However, the EU budget doesn’t aim to redistribute wealth, but rather it focuses on the needs of Europeans as a whole and Ireland’s access to the Single Market is estimated to be worth €30 billion euro annually, substantially more than its contributions.
European Semester
The framework for coordinating economic policies across the European Union is provided by the European Semester. This framework allows EU Member States to outline their economic and budget plans and have progress monitored at specific times throughout the year.
Member States have autonomy to implement their own financial policies and tax regimes but the Semester ensures they keep within an agreed set of rules called the Stability and Growth Pact (SGP).
The Semester was introduced in 2010 in response to the global economic crisis of the time. It includes mechanisms to identify potential risks to stability and imbalances such as property market bubbles, like the one that contributed to Ireland’s economic crash in 2010.
The annual Semester cycle runs from November to October with ‘packages’ for each Member State published in autumn, winter and spring detailing priorities, guidelines, recommendations and reports.
The European Commission's 2022 European Semester Spring Package provided guidance on recovery from the Covid-19 pandemic and the impact of Russia's invasion of Ukraine.
According to the country report for Ireland, the Irish economy weathered the pandemic well and Ireland was the only EU country to avoid a recession during the pandemic.
According to Eurostat, Ireland’s unemployment rate in May 2022 was 4.7% compared to an EU average of 6.1%, while youth unemployment was 4.9% compared to the EU average of 13.3%.
Ireland’s Spring Package 2022 country report includes recommendations that Ireland should act on including:
- Reduce reliance on fossil fuels;
- Accelerate the electrification of transport, including by installing charging facilities;
- Develop infrastructure and policies to prevent waste and increase reused and recycled content;
- Expand public investment for the green and digital transition and for energy security, including by making use of EU funds;
- Ensure the fast implementation of deep building retrofits.
An in-depth review of Ireland was carried out after macroeconomic imbalances were found in 2021. These reviews are carried out by the European Commission to help Member States correct imbalances and the 2022 IDR for Ireland found no imbalances.
The Semester Spring Package report warns that Russia’s invasion of Ukraine and rising energy prices will impact the Irish economy and recommends that Ireland should prepare to adjust current spending as the situation evolves.
Economic and Monetary Union
The Economic and Monetary Union (EMU) helps integrate EU economies so they can provide stability and stronger, more sustainable, inclusive growth to improve the lives of EU citizens.
It involves the coordination of economic and fiscal policies, a common monetary policy, and a common currency, the euro.
All EU Member States are part of the economic union but some, including Ireland, that have adopted the euro, are collectively called the Euro Area or Eurozone.
Ministers from Euro Area Member States discuss matters relating to the currency in the Eurogroup and Ireland’s Minister for Finance, Paschal Donohoe, was elected its President in July 2020 for a two and half year term.
Responsibility for economic policy within the EMU is divided between Member States and EU institutions including the European Commission, which monitors performance and compliance.
The European Central Bank is the EU institution responsible for implementing an effective, closely coordinated, monetary policy for the euro area, within the objectives of price stability and safeguarding the currency’s value.
National governments control other economic policy areas including fiscal policy that concerns government budgets, and tax policies that determine how income is raised.
The Banking Union, established in response to the global financial crisis in 2008, strengthens Economic and Monetary Union. It creates a more transparent, unified, safer market for banks and helps protect depositors by ensuring banks behave prudentially and that action is taken quickly to prevent them from failing.
The progress achieved over the last decade to strengthen supervision and regulation in the EU banking sector has ensured the resilience of the banking and financial sector and served us well during the pandemic.
Eurogroup President, Paschal Donohoe
The Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) is responsible completing the banking union, as well as the Commission's policies on banking and finance.
Led by Irish Commissioner Mairead McGuinness, its objectives include building a well-regulated, globally competitive single market for financial services and developing sustainable financing strategies to support the implementation of the European Green Deal. This Capital Markets Union (CMU) will mobilise capital in Europe and channel it to companies, including SMEs, and infrastructure projects that need it to expand and create jobs.
How the Economic and Monetary Union works
Webpage of Mairead McGuinness - EU Commissioner for Financial services, financial stability and Capital Markets Union
Latest economic news
The European Commission has approved, under EU State aid rules, a €20 million Irish scheme to support the development of cultural digital games.
The European Commission has approved, under EU State aid rules, the prolongation of an Irish scheme to refund employers' social security contributions in respect of seafarers on certain vessels.
Ireland will benefit from €1.4 billion in Cohesion Policy funding between 2021-2027 to support the sustainable development of its economy. The details and strategy for these investments are set out in the Partnership Agreement between Ireland and the Commission that was formally launched today.