As a small open economy Ireland is largely dependent on international trade and markets, which makes it economically vulnerable to global crises such as the Covid-19 pandemic.
However, being part of the European Union means Ireland can utilise the combined power of 27 Member States for recovery from unexpected financial shocks, as well as long-term economic growth and fiscal stability.
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 Covid-19 and Brexit
Europe’s recovery from the financial consequences of the Covid-19 pandemic is of vital importance to Ireland’s economic interests, particularly as the country will also be impacted by Brexit.
The EU is responding to the coronavirus crisis with a recovery package of €1.8 trillion consisting of Europe's next long-term Multiannual Financial Framework (MFF) budget and the temporary recovery instrument, Next Generation EU.
It is the largest package ever financed through the EU budget and it will power an economic resurgence that reflects the Commission’s European Green Deal roadmap for a sustainable economy and accelerate the digitalisation of Europe's economy.
The European Commission’s recovery plan for Europe utilises several revenue sources to help repair the economic damage caused by the pandemic, and there are specific supports for sectors important to Ireland, such as agriculture, to secure food supplies and protect the income of farmers.
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.
Ireland is set to receive an estimated €1.27 billion in Recovery and Resilience Facility grants, with 70 percent of that to be allocated in 2021/22. There will be €89 million available in 2021 under REACT-EU and €77 million from the Just Transition Fund as well.
Ireland will also receive almost €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 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;
- Ireland will benefit from significant funding from the €5 billion EU Brexit Adjustment Reserve.
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 the EU’s internal and external 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 three 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 still 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.
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.
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 they behave prudentially and that action is taken quickly to prevent banks from failing.
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 the sustainable financing strategy 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
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