Paschal Donohoe faces a delicate dance to keep influential Eurogroup job

A delicate behind-the-scenes dance is commencing between Dublin, Cork and Brussels that will see two important national interests weighed against one another and challenge relationships at the heart of the Coalition in the coming months.

On one side is Ireland’s tenure in one of the most influential jobs in Europe; on the other is the stability at the centre of the Coalition and its ability to maintain fiscal discipline during a period of unprecedented economic — and therefore political — pressure.

That stability of the Government rests not only on all sides observing the written agreement that is the programme for government, but on maintaining the relationships that allow it to function on a day-to-day basis. It also relies on the unwritten parts of the agreement. Many of these relate to senior appointments that are part of government or otherwise in its gift; decry it all you like, but this is a central part of politics everywhere.

The innovation that allowed this Government to be formed was the decision by the leaders of Fine Gael and Fianna Fáil to share the role of Taoiseach. So on December 15th, Micheál Martin will resign from the office, and TDs in all three Government parties will support Leo Varadkar’s election (all going well). When the Taoiseach resigns, all the members of the Cabinet are deemed to have resigned, so a new Cabinet will have to be reappointed by the new Taoiseach.

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What is not written in the programme for government but clearly agreed between the two party leaders is that when Fine Gael takes the office of taoiseach, Fianna Fáil will take the office of minister for finance. There’s an obvious swap between the two holders of the roles — Michael McGrath goes to finance, and Paschal Donohoe goes to public expenditure.

But there’s also a problem with this, and that’s where the national interest comes in.

Donohoe is president of the Eurogroup, the group of finance ministers of the euro zone — the countries that use the common currency. His term of office expires next year, but he is expected to seek another two-and-a-half-year term. If he does so, he is likely to be unopposed for the role, sources in Brussels say.

Though a part-time role, the Eurogroup chairperson is extremely influential throughout the EU, as evidenced by Donohoe’s attendance last week at the EU summit, where he and European Central Bank chief Christine Lagarde presented the gloomy economic outlook to the heads of government. Scheduled to present and then leave in order to allow the leaders to discuss the issues, Donohoe and Lagarde were instead asked to remain and contribute. It was a move that underlined Donohoe’s growing stature in European politics — he has used the Eurogroup role to cultivate links not just throughout Europe (the Eurogroup meets every month) but with US treasury secretary Janet Yellen, who visited Dublin last year to say warm words about Donohoe to an audience at the Institute of European Affairs.

No doubt this is nice for Donohoe, but it isn’t about jobs for the boys (well, not entirely). It is about Ireland’s interests. Having Donohoe in the room when choices are being made or narrowed is important. For example, the agreement of the new minimum corporation tax rate last year at a level that suited Ireland (and preserved its model of receptiveness to inward investment) was heavily influenced by Donohoe’s diplomacy and willingness to play hardball when required.

Being head of the Eurogroup gives him — and therefore Ireland — a much bigger voice on the European and world stage. It is a significant national asset.

So here’s the catch: to be a member of the Eurogroup, you are supposed to be the minister for finance. Which brings us back to Fianna Fáil and Fine Gael. Would Fianna Fáil be willing to give up the finance gig to keep Donohoe in post? Sources with some knowledge of his thinking say that the Taoiseach recognises the importance to Ireland of the Eurogroup position. But another Fianna Fáil source of some authority says simply: the job of minister for finance has to move to Fianna Fáil. As we never tire of telling the UK government: agreements must be respected. McGrath is likely press this point with some vigour.

There may be a way around all this. If Donohoe moves to public expenditure, he could seek to remain on the Eurogroup as the Irish minister with principal responsibility for the budget. There is precedent for a non-finance minister to head the group, as Jean-Claude Juncker did when he was prime minister of Luxembourg. This would require the agreement of the other member states; it would also require the agreement of McGrath to give up the Eurogroup seat.

Ultimately this has to be sorted out between the party leaders and the two budget ministers. Some delicate conversations lie ahead.

In the meantime, Donohoe and McGrath — whose relationship has heretofore been one of the pillars of the Coalition — must agree a budget that helps those in difficulty but does not set the State on the road to future ruin. That requires a lot of saying no to colleagues, to interest groups and — sometimes — to their bosses.

They must do this at a time when the exchequer is cash rich. This week I was teasing one mandarin about how much money his colleagues were stashing down the back of the famous Department of Finance couch. He replied: “It’s more money than couch at this stage.”

Donohoe and McGrath have been the strongest force, and sometimes the only one, for a prudent budgetary policy in the Government. That resolve will now be tested as never before. It might be better to resolve the Eurogroup business before the budget pressure really piles on.