In December 2020, the leaders of all European Union countries, the European Parliament and the European Commission agreed on a Recovery Plan to help repair the economic and social damage brought about by the COVID-19 pandemic.
Through the EU’s long-term budget, together with the temporary NextGenerationEU instrument, a total of €2.018 trillion was set aside to help build a greener, more digital and more resilient Europe.
In June 2023, the European Commission proposed to further reinforce the long-term budget in response to the unforeseen challenges posed by Russia’s unprecedented brutal invasion of Ukraine and an unexpected increase in post-pandemic irregular migration.
What is in the EU Recovery Plan?
The long-term EU budget, which was topped up to meet the COVID-related challenges, ensures that more than 50% of the Recovery Plan is dedicated to modernisation, through research and innovation, climate and digital transitions, and preparedness, recovery and resilience.
This forward-thinking package, in line with the European Green Deal, will fight climate change and at least 30% of the EU budget will be spent on this priority. It will also pay specific attention to biodiversity protection.
NextGenerationEU provides an additional €806.9 billion, and €723.8 billion (in current prices) of this will be delivered through the Recovery and Resilience Facility (RRF), which provides loans and grants to support structural reforms and investments undertaken by EU countries.
The European Commission has also implemented a new Technical Support Instrument (TSI) to provide tailor-made expertise for EU countries to design and implement reforms without the need for co-financing from Member States.
The European Semester, which is the framework to coordinate and monitor EU economic policy, has also been adapted as it is closely linked to the Recovery and Resilience Facility, and this will ensure that structural reforms are an integral part of the recovery for each country.
To access the Recovery and Resilience funds, each EU member country has provided a national Recovery and Resilience Plan (RRP), in which at least 37% of expenditure is allocated to climate and 20% to digital investments and reforms. The plans must be implemented by 2026.
Economic recovery in Ireland
Europe’s recovery from the economic, financial and social consequences of the COVID-19 pandemic is of vital importance to Ireland’s economic interests, particularly as the country is also being impacted by Brexit.
The Irish economy recovered stronger than most EU Member States from the pandemic with economic growth of 12% recorded in 2022.
In its Autumn 2023 Economic Forecast, however, the European Commission predicted that Ireland's GDP would decline to 0.9% in 2023 amid developments in multinational-dominated sectors and normalising domestic demand. GDP is forecast to grow again by 3.0% in 2024 and 3.4% in 2025 on the back of higher external demand. Modified domestic demand, which better reflects underlying domestic economic activity in Ireland, is set to expand by 2.3% in 2023, 1.9% in 2024 and 2.1% in 2025.
Inflation that peaked at 8.1% in 2022 was forecast to drop to 5.3% in 2023, 2.7% in 2024 and 2.1% in 2025.
The government budget surplus is projected to shrink in 2023 and 2024, before rebounding at around 1% of GDP in 2025.
The number of people in work in Ireland was close to record levels at the beginning of 2023, while the unemployment rate was at near-historic lows of 4.3%. As the Irish economy is estimated to be operating at full employment, real wages are projected to increase significantly.
According to the European Semester 2023 Country Report for Ireland, public finances in Ireland are sustainable for the short term, but reliance on tax revenues from multinationals presents potential longer term risks.
In its 2023 Semester recommendations for Ireland, the European Commission advises Ireland to significantly accelerate the implementation of its recovery and resilience plan and proceed with the speedy implementation of cohesion policy programmes.
What’s in the Recovery Plan for Ireland?
NextGenerationEU, the EU’s temporary recovery instrument, includes specific supports for sectors important to Ireland, such as agriculture, to secure food supplies and protect the income of farmers.
- Ireland is set to receive over €900 million in Recovery and Resilience Facility grants. There was also €89 million available in 2021 under REACT-EU and €85 million from the Just Transition Fund. In December 2022, it was announced that Ireland was to receive an additional €53 million under REACT-EU to further support the recovery and welcome people fleeing Russia’s invasion of Ukraine.
- Ireland will also receive almost €1.4 billion in Cohesion Policy allocations from the latest long-term EU budget, as well as just over €8.3 billion in direct payments from the European Agricultural Guarantee Fund (EAGF). There will also be €2.25 billion available through the European Agricultural Fund for Rural Development.
- In 2021, the European Commission disbursed €2.47 billion in financial support to Ireland under the SURE instrument. The support was provided in the form of loans granted on favourable terms to assist Ireland in covering the costs related to its Temporary COVID-19 Wage Subsidy Scheme.
- The European Commission has adopted a Temporary Crisis and Transition Framework to support the recovery in the context of Russia's war against Ukraine. This allows for limited flexibility of EU State Aid rules that are designed to prevent unfair competition.
- In 2020 the Commission approved two Irish State Aid schemes worth €10 and €7 million to Ireland’s coach tourism and entertainment sectors, which were badly hit by the pandemic.
- It also approved a €45 million Irish scheme to support companies active in the beef sector and a €60 million Irish scheme to support small and medium-sized enterprises (SMEs) affected by the coronavirus pandemic.
- In July 2021, the Commission approved a €9.5 million Irish scheme to support not-for-profit entities in the context of the coronavirus outbreak. And, in August 2021, the Commission approved a €11.5 million Irish scheme to support companies active in the events sector and a €15 million Irish scheme to support commercial bus operators affected by the coronavirus outbreak.
- Other Irish State Aid schemes approved under the framework include a €500 million support scheme aimed at providing investment towards a sustainable recovery, a €200 million scheme to support Irish companies impacted by Russia’s invasion of Ukraine, and an €18 million scheme to support the road haulage sector in Ireland. A €450 million scheme to support the construction of apartments exclusively for owner-occupiers in Dublin, Cork, Galway, Limerick and Waterford was also given the green light.
- Ireland will also be the largest recipient of the €5 billion Brexit Adjustment Reserve fund.
Delivering Ireland’s Recovery Plan
The Irish Government carried out a public consultation on its Recovery and Resilience Plan (RRP) in February 2021. This consultation sought input on which areas Ireland should prioritise for investments and reforms, and which country-specific recommendations are considered the most relevant for Ireland’s plan.
This feedback was integrated into the draft plan which was submitted by the Irish Government to the European Commission on 28 May 2021.
On 16 July 2021, the Commission adopted a positive assessment of Ireland's RRP, which was then formally adopted in September 2021.
However, while progress is underway, Ireland has experienced significant technical delays in implementing its plan. In May 2023, Ireland officially requested to modify its RRP by changing completion dates for two measures because timelines were no longer achievable.
The Irish RRP consists of 16 investment measures and nine reforms across three components supported by almost €1 billion in grants. The plan allocates 42% of its budget to support climate investments and reforms and 32% to foster the digital transition.
Projects in Ireland supported by Recovery and Resilience Facility grant funding include €164 million for the electrification of commuter rail services in Cork, €40 million for a Government data centre at Backweston Campus, Co Kildare, to facilitate more environmentally-efficient use of technology, and €50 million for the refurbishment of Tom Johnson House in Dublin to transform it into an exemplary, energy-efficient headquarters for the Department of the Environment, Climate and Communication.
The Recovery and Resilience Facility is also supporting several investments in Ireland where funds are distributed across the whole country. These include:
- The €65 million National Challenge Programme for research into developing solutions to the key challenges of the green transition and digital transformation.
- €108 million in grant funding for the rehabilitation of 33,000 hectares of peatlands across 82 bogs owned by Bord Na Móna.
- €67 million in grant funding for high-speed broadband connectivity to ensure primary and post-primary school pupils are equipped with appropriate digital skills.
- The Irish RRP is also supporting reforms such as the digital transformation of education and training in Ireland at all levels (schools, third level, lifelong learning). Ireland’s Digital Strategy for Schools to 2027 will be underpinned by capital funding of €200 million.