Demand to rebound as Covid curbs ease, says Paschal Donohoe

Economic demand will rebound in the Republic and Europe as governments ease Covid-19 restrictions and vaccinate their citizens, Minister for Finance Paschal Donohoe believes.

Mr Donohoe, current president of the Eurogroup, said the 18 EU member states that use the currency told European Movement Ireland that any post-pandemic upturn must be long lasting and sustainable.

“To be clear, as the vaccination process gathers momentum and restrictions ease, we will see an automatic upturn in activity,” he said on Monday.

"We saw elements of this last summer in Ireland and in the euro area, with very robust quarter three figures. In the coming months, we will see a resurgence in domestic demand as restrictions ease and we can already see elevated levels of household savings."

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His comments came on the day that employers’ lobby group Ibec said it expects consumer spending to rise by 9 per cent in 2021. This is expected to happen as the vaccine rollout programme gathers momentum and about €8 billion-plus in pent-up demand is released as the economy begins to reopen in the second half of the year.

Mr Donohoe noted that the Eurogroup had provided €540 billion in “safety nets” to counter Covid-19’s impact.

These included the European Stability Mechanism’s crisis support, the European Investment Bank’s guarrantee fund and the Support to mitigate Unemployment Risks in an Emergency (Sure).

“In real terms, Sure has supported furlough schemes in 18 EU countries benefitting around 21.5 million employees and five million self-employed, or a quarter of total employment across the recipient EU countries,” said the Minister.

Responding to questions from an audience that tuned into his address online, Mr Donohoe said he was confident that the Republic would be able to maintain its 12.5 per cent tax rate on company profits.

Stressing that he spoke only as Minister for Finance when it came to this question, he cautioned that there would be a lot of developments in the taxation area at EU level in coming months.He also rejected the notion that the Government had failed to support aviation to the same level as other EU states since restrictions shut down air travel last year.

Aviation schemes

“We put in place massive plans to support aviation,” he said. The Minister added that the schemes were so well designed that the businesses and workers who needed them most were the biggest beneficiaries.

“If you look at out wage subsidy scheme you will find that the one of the largest sectoral recipients has been aviation,” Mr Donohoe said.

He noted that the industry was also one of the biggest beneficiaries of commercial rates and waiver schemes. However, Mr Donohoe acknowledged that the “biggest support to aviation will be the restoration of safe travel”.

Meanwhile, the Minister said that the Government had submitted its national recovery plan to the EU Commission at the end February, ahead of next month’s deadline.

"As it stands we have submitted a group of projects and programmes that look to deliver the green and digitital transformation that the European Union focuses on," he said.

Mr Donohoe explained that the Goverment was now discussing this with the commission. He predicted that the changes and reforms sought by the commission should be clear by early May. The Minister said that contrasting the EU’s proposals with the US president Joe Biden’s pledge to spend $1.9 trillion on a federal recovery plan “missed the point”.

Mr Donohoe said those comparisons deflected from what each EU country is doing.

‘Inherent differences’

“Aside from obvious differences between the US and EU countries, there are inherent differences in our economies, in our social protection systems and in our longer-term objectives,” he argued.

“Ultimately, both the EU and US economies are injecting huge amounts of resources into battling Covid-19. These stimuli will also mutually reinforce one another.”

He stressed that the EU’s budgetary policies should remain flexible to ensure it wins the battle against Covid-19.

Mr Donohoe noted that more sustainable medium-term strategies would be needed to deal with member states’ mounting debts.