Minister for Finance Paschal Donohoe scored a coup on Monday as the first foreign visitor to meet German federal finance minister Christian Lindner.
Germany’s new three-way coalition is headed by the Social Democrat (SPD) chancellor Olaf Scholz, Mr Donohoe’s previous counterpart as finance minister.
Meeting Mr Lindner, head of the liberal Free Democratic (FDP), was a chance for Mr Donohoe to sound out how much – or how little – reform ambition euro members can expect from the new Berlin administration in the post-pandemic era.
At a joint press briefing before talks, Mr Donohoe set the bar high, predicting Mr Lindner would bring a “huge level of commitment, energy and expertise . . . and indeed passion”.
That attracted a nod of approval from Mr Lindner, who turned 43 last Friday. As he listened his restless eyes scanned the small gathering, his left hand popping in and out of his trouser pocket.
He nodded again in approval when Mr Donohoe promised, as eurogroup head, to nudge members back to sustainable public finances in a post-pandemic era.
This greener and more digital future was a place, said Mr Donohoe, “where the contribution of the private sector – not just the role of public capital – is crucial to allow us deliver this ambition”.
The Irish visitor, after effectively quoting back to the liberal finance minister one of his own coalition priorities, suggested an ideal way to do this would be to complete the banking union.
Banking union
It was devised a decade ago in response to the financial and euro crises and Germany has consistently refused to complete the banking union proposal for a common, euro area deposit insurance scheme. Berlin fears German savers would rebel against the prospect of being liable for savings – and debts – of others’ banks.
The new government still opposes common deposit insurance but is open to the idea of a “reinsurance” scheme”, with contributions linked to the risk levels of each member states’ banking sector. In effect, German officials say, a euro member state’s other banks would bail out a national competitor’s savers before triggering the euro-level fund.
“We are open for progress but we have to make progress in other aspects, too,” Mr Lindner said on the banking union.
Speaking later, Mr Donohoe said he was confident Berlin sees how a completed banking union can help unlock private financing to, in turn, bankroll a model for green transformation of industrialised economies – made in Europe.
Germany’s reinsurance proposal to break the banking union deadlock could, he said, form “a good basis for engagement” with other countries.
“Agreement on banking union will be intensely difficult,” he said in Berlin. “But we will get that agreement, the will is there.”
Greater flexibility
After talks with German economics minister Robert Habeck, the Green Party co-leader, as well as opposition MPs, Mr Donohoe had a private dinner with Mr Lindner at the Irish Ambassador’s residence.
Many euro group colleagues, hoping for greater flexibility from Berlin, will be hoping Mr Donohoe can convince the new finance minister to show at euro level the same pragmatism he is already showing at home.
At lunchtime on Monday, a Bundestag committee heard legal and economic arguments for and against Mr Lindner’s plan to repurpose €60 billion pandemic aid to finance climate-friendly investment.
Looking on, the Die Welt daily suggested on Monday that no one should underestimate Mr Lindner’s political flexibility. He is just weeks in office and it suggested he has morphed already from a free market hawk to a balance sheet Houdini with a sideline as a green investment guru.
“This one-man show,” sniffed Die Welt, “is one of the most remarkable political achievements of the recent past.”
After his meetings, Mr Donohoe declined to be drawn on whether he thought Berlin might – as Paris and others hope – make permanent the one-off Next Generation Europe Covid-19 recovery fund, co-funded directly by the EU, and worth €750 billion.
“I do think think it is reasonable to say, before we begin thinking beyond the recovery fund, that all efforts should go into its implementation,” he said.
