As a small open economy Ireland is highly dependent on international trade and markets, making it vulnerable to global financial crises.
However, as a member of the European Union Ireland benefits from the collective power of 27 Member States for fiscal stability, long-term economic growth, and aiding recovery from unexpected financial shocks.
EU membership has helped Ireland transition from economic stagnation in the mid-20th century into a nation with a dynamic economy driven by free trade, foreign investment and sustained growth.
The EU’s Single Market, adoption of the euro and coordinated EU economic and fiscal policy help ensure Ireland’s economy remains stable and competitive on a global scale.
Economic response to global crises
Russia’s invasion of Ukraine has posed new challenges for Europe’s economy. The attack began just as Europe was beginning to emerge from the Covid-19 pandemic, and the outlook for the EU economy then was for a prolonged expansionary phase.
But the war resulted in upward pressures on commodity prices, supply disruptions and increasing uncertainty. Following robust growth in 2021 and 2022, the EU economy lost momentum with real GDP contracting towards the end of 2022 and barely growing during 2023.
The EU and its international partners condemned Russia’s unjust military aggression and imposed tough economic sanctions on Russia. As of early 2025, the EU had implemented 15 packages of sanctions targeting various sectors of the Russian economy, including finance, energy, and defence.
Ireland’s David O'Sullivan, a former Secretary-General of the European Commission, is the EU Sanctions Envoy. His role involves engaging in high-level discussions with third countries to avoid evasion or circumvention of the sanctions.
In 2024, the EU economy began to show signs of recovery, but growth remained fragile due to ongoing geopolitical tensions in the Middle East and from the Russian invasion. The economic outlook for the EU in 2025 is cautiously optimistic, with real GDP growth projected at 1.5%, up from 0.9% in 2024.
While the situation in Ukraine continues to evolve, the European Commission’s Temporary Crisis and Transition Framework has enabled Member States to use limited State Aid measures to mitigate the economic impact of the war by financially supporting severely impacted companies and sectors. State Aid is generally not allowed under EU rules as it gives companies that receive government support an unfair advantage over competitors.
First adopted in 2022 as the Temporary Crisis Framework, it has been adapted and extended multiple times to address evolving economic conditions and respond to feedback from Member States. Some framework sections were prolonged to support citizens and businesses during winter periods in the event of energy price instability. Framework measures supporting the green transition to a net-zero economy will continue until December 2025.
Support for Ireland through the framework included the approval of a €1.22 billion scheme to support companies impacted by Russia’s war against Ukraine. A €100 million State Aid scheme to support the microelectronics-manufacturing sector was also approved and in December 2024 the green light was given to a €32.5 million scheme to support Irish tillage and horticulture producers affected by market difficulties caused by Russia’s war.
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.
Between 2024 and 2026 Ireland will receive an estimated €1.15 billion 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 benefit from around €1.4 billion in Cohesion Policy allocations between 2021 and 2027, 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 included:
- Almost €2.5 billion in financial support under the SURE instrument to assist with costs related to the Temporary COVID-19 Wage Subsidy Scheme;
- The Commission approved, under EU State Aid rules, a number of Irish schemes to support sectors such as tourism, arts and culture, air travel, beef production as well as not-for-profit entities and commercial bus operators.
- The InvestEU Programme provides Member States with long-term funding to companies and to support EU policies in recovery from economic and social crises.
Temporary Crisis and Transition Framework
Recovery plan for Europe in Ireland
Ireland’s recovery and resilience plan
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 MFF 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 MFF is calculated fairly, according to means. Ireland was a net recipient of the MFF for its first four decades of EU Membership and it is now a net contributor. Irish Department of Finance forecasts estimate annual net contributions of between €4.1 and €4.5 billion for 2024-2027.
However, Ireland’s access to the Single Market is conservatively estimated to be worth €25 billion annually, substantially more than its MFF contributions. It’s also important to note that the EU budget doesn’t aim to redistribute wealth, but rather it focuses on the needs of Europeans as a whole.
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.
- 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).
A general escape clause that allows EU member states to temporarily exceed normal SGP deficit and debt limits during severe economic downturns was activated in response to the 2020 Covid-19 pandemic. The clause was deactivated at the end of 2023. In February 2025, European Commission President Ursula von der Leyen said she would propose activating the clause to exempt defence from EU limits on government spending in light of geopolitical tensions.
The European 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.
In April 2024, new economic governance rules proposed by the European Commission to address shortcomings in the framework that emerged in the aftermath of Covid-19 came into force. The new rules include:
- New multi-year national plans in which Member States will set out their economic targets and reform measures over a period of at least four years.
- Risk-based surveillance that adjusts to each Member State's financial situation.
- Simpler rules and Member States will have more flexibility but their commitments will be more strictly enforced.
The annual Semester cycle currently runs from November to October, beginning with the Autumn Package in which the Commission sets out general social and economic priorities for the coming 12-18 months based on the Annual Sustainable Growth Survey (ASGS). Member States are provided with policy guidance for their national budgets to ensure stability and unified progress in achieving common EU budgetary and policy targets.
The Commission's 2024 European Semester Autumn Package was the first under the new economic governance framework. Medium-term plans submitted by Member States are an integral part of the new framework as they show how they intend to address common EU objectives like the green and digital transitions.
The Commission assessed the plans and determined that 20 Member States, including Ireland, met the requirements of the new framework by setting out a credible fiscal path to put debt levels on a sustainable downward path. However, the Commission also assessed Ireland, along with Germany, Estonia and Finland, as not being fully in line with fiscal recommendations because their net expenditure is projected to be above their respective ceilings.
The European Commission's 2024 European Semester Autumn Package includes specific recommendations for Ireland including:
- Enhance healthcare cost-effectiveness to manage rising age-related expenditures.
- Address delays to implement the recovery and resilience plan, including REPowerEU, by August 2026.
- Invest in water infrastructure to improve quality and reduce leakage.
- Improve electricity system flexibility, expand grid capacity, and promote demand-side response.
- Streamline planning for storage facilities and grid connectors, and improve building energy performance to lower costs.
The Commission aims to improve its analytical basis and strengthen the dialogue with Member States and other stakeholders on concrete policy actions for the 2025 European Semester cycle.
The European Semester Autumn Package is informed by the Autumn Economic Forecast that provides economic projections for EU countries, including GDP growth, inflation, employment, and public finances.
The Commission’s Autumn 2024 Economic Forecast states:
- Ireland's GDP was projected to decline by 0.5% in 2024 after a 5.5% decline in 2023. However, economic activity is projected to rebound with growth of 4.0% expected in 2025 and 3.6% in 2026.
- Overall EU GDP growth is forecast to improve following a prolonged period of stagnation to 1.5% in 2025 and 1.8% in 2026.
- Ireland’s economic slowdown has been mainly influenced by a few key sectors dominated by export-oriented multinationals.
- Inflation that peaked at 8.1% in 2022 was forecast to drop to 1.4% in 2024, 1.9% in 2025 and 1.8% in 2026.
- Irish employment levels remained strong in the first half of 2024, supported by high net inward migration and increased female participation. Further employment growth is anticipated in 2025, and 2026.
The Irish Government’s most recent Draft Budgetary Plan, based on its expected 0.2% contraction in 2024, predicts that Ireland’s real GDP will grow by 3.9% in 2025.
Economic and Monetary Union
The Economic and Monetary Union (EMU) plays a crucial role in integrating EU economies. Its primary goal is to provide stability and foster stronger, more sustainable, inclusive growth that will 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 those that have adopted the euro, including Ireland, 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, is its President.
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 was established in 2014 in response to the 2008 financial crisis and the subsequent sovereign debt crisis. It comprises two main pillars: the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). These mechanisms aim to create a more transparent, unified, and safer market for banks within the EU. This has helped the EU's banking sector become more resilient, with financial institutions in the EU now well capitalised, highly liquid and closely supervised.
Work on completing the Banking Union is ongoing, and its third pillar, a unified deposit insurance scheme for the Eurozone called the European Deposit Insurance Scheme (EDIS), is still not in place. When implemented, the EDIS will become a component of the Crisis Management and Deposit Insurance (CMDI) framework. The CMDI is a broad set of rules and mechanisms for managing bank failures and protecting depositors.
In April 2023, the Commission adopted a proposal to strengthen the CMDI framework to further protect taxpayers and depositors from failing medium-sized and smaller banks. The proposal will help preserve financial stability and minimise the use of public funds in bank resolutions.
The Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) is tasked with completing the banking union, and it is also responsible for initiating and implementing EU policy in banking and finance.
Its objectives include building a well-regulated, globally competitive Capital Markets Union for financial services and developing sustainable financing strategies to support the implementation of the European Green Deal. The CMU will be a single market for capital across the EU that would enable companies, including SMEs, to raise funds for expansion and growth.
Progress has been made with efforts underway to develop a competitive regulatory and supervisory system, increase investments in sustainable and digital sectors, and facilitate citizens' access to capital markets. However, the CMU is still a work in progress but with some EU companies turning to capital markets outside Europe to access funding, completing the project is vital for Europe’s future competitiveness, innovation, sustainable growth and job creation.
The European Central Bank is preparing to introduce a digital euro that will provide a secure, accessible, efficient form of digital money that complements cash. The digital euro will ensure that all citizens in the Euro Area, including those without bank accounts, have access to a simple, safe, secure and efficient form of digital money.
How the Economic and Monetary Union works
Q&A: Reform of bank crisis management and deposit insurance framework
Latest economic news
On 23 December, the European Commission received the second payment request from Ireland for €115.5 million in grants, under the Recovery and Resilience Facility (RRF). Irelands' second payment request concerns 17 milestones and targets.
The European Commission has approved a €32.5 million Irish scheme to support tillage and horticulture producers in the context of Russia's war against Ukraine.
Ireland’s GDP is expected to decline by 0.5% in 2024 according to the European Commission's Autumn Economic Forecast. Economic activity is projected to rebound with growth of 4.0% in 2025 and 3.6% in 2026.