“I’m an optimistic centrist dad,” said the Minister for Public Expenditure Paschal Donohoe on Tuesday, in advance of an address he was to give in London in his guise as president of the Eurogroup.
As optimistic as he may be, Donohoe also brought with him a warning to the City of London financiers whom he addressed at their fabled Guildhall.
Western economies are at an “inflection point”, Donohoe said, caught between current high debt levels and future high demands on public finances as populations age. If the problem isn’t fixed, he suggested, there may not be enough money left to combat threats such as climate change.
“Demands for spending are at all-time highs and will only get larger,” he told his high-powered audience, which included the lord mayor of the City of London, economist Michael Mainelli.
“That is the uncomfortable but obvious truth.”
But, being the centrist dad type, Donohoe had rummaged around his financial toolbox and came bearing a potential fix. There, in the financial heart of post-Brexit Britain, he told its most powerful money men and women that one solution lay in the proposed capital markets union (CMU) of the European Union, a plan to unlock €10 trillion of EU citizens’ savings for potential investment across the bloc.
For City financiers, meanwhile, such opportunities smelled of their favourite thing: money. Whenever that heady whiff fills their nostrils they tend to sit up and take notice, as they did in the Guildhall.
Donohoe, wearing his Eurogroup hat, has become something of an evangelist for the CMU, which is being pushed hard by all the big powers in the EU. The idea is wonkish and complicated, but essentially the CMU would make it easier for capital such as savings to flow between different EU states, funding investments such as green energy and other pressing needs.
Traditionally, the notion of a CMU has been viewed with suspicion by small nations such as the Republic, where there is an aversion to any kind of EU financial harmonisation due to the bloc’s habit of trying to unpick the State’s tax advantages. Donohoe, however, says there is little to fear – nations’ rules for CMU could be “aligned”, he said, not centrally controlled.
A CMU might be good for governments with addled finances. It would certainly be good for financiers.
But what about the rest of us? Why should our hard-earned savings be allowed to flow around the markets of Europe, for bankers and brokers to lean in and try to fill their cups?
“It will allow your savings to be invested to give you a better life in future. That’s the story,” said Donohoe. “It will make sure you have a chance to be healthier later in life,” because it will fund essential initiatives such as fighting climate change.
On his way to the City, Donohoe took a brief detour to Whitehall to meet Rachel Reeves, the new Labour government’s chancellor of the exchequer. He was the second senior Irish Minister to do so in two days, after Jack Chambers, the Minister for Finance, met Reeves on Monday.
Donohoe’s role in the Eurogroup gives him, and by extension, the Republic, extra clout in 11 Downing Street where Reeves covets closer co-operation with the EU on financial matters.
Earlier, upon his arrival to London and the Irish embassy in Belgravia, Donohoe had spoken about why some people have become disillusioned about the economic market system. For the first time in many generations, he said, standards of living had gone backwards over a few short years.
“But with the right regulation and the right structures, the economy is still capable of delivering the level of change needed,” he said.
“It’s a challenge we must rise to and I believe we will. I’m making the case for optimism. And if you’re a centrist dad like me, the last few years have given us evidence for that.”
Donohoe offered the Republic’s story as evidence for his claim. He said that over the “long arc of the Irish economy”, each time it has hit a shock previously, such as the banking and public finances collapse of 2008, the open structure of the economy had made things worse.
But in recent years, he argued, the State chose to run huge budget surpluses upon recovery and because of this, it was in better shape to weather more recent shocks: the pandemic and inflation. He said the Republic had to make hard choices to run those surpluses, but it was worth it in the end.
“That’s a unique case in Irish history,” said Donohoe.
And if Ireland can solve its problems with prudent economic ideas, then the rest of the EU can too, he suggested, with the example of the CMU as a prudent idea to solve the bloc’s financial problems.
On the home front, Donohoe also insisted that he would definitely still run in the next general election, whenever it is called over the next eight months. “I was out in Drumcondra the other night, putting leaflets in people’s doors,” he said. Fittingly for a centrist dad, it was while the neighbourhood was filled with people on their way to a Coldplay concert.
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