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The EU’s €750 billion recovery fund – What is in it for Ireland?

In the ‘deal before dawn’ to secure a multi-billion euro Covid-19 recovery package and a €1.8 trillion budget package to see the EU through the next seven years, how did Ireland play its hand?

Our reporter Eleanor Burnhill has been looking at Ireland’s potential gains and losses.

Heading into his first EU summit, Taoiseach Micheál Martin indicated that Ireland would be a net contributor to the EU’s €750 billion Covid-19 recovery fund, stating that overall economic recovery in Europe was more important than what Ireland “got back”.

But as southern states whose economies have been most badly impacted by the pandemic, slogged it out with the so-called ‘Frugal Five’; the Netherlands, Austria, Denmark, Sweden and Finland – what impact will this landmark deal have on Ireland?

“It is crucial for Ireland, both that the European Union continues to be a success and that the single market continues to be a success because we export everything we produce in this country,” said Gavin Barrett, a professor specialising in EU law at UCD’s Sutherland Law School.

“I think it would have been a devastating setback for the European Union if no deal had been agreed,” he added.

“It would have really brought to the forefront divisions which might have made it difficult for the European Union to survive in the format that it has.”

Covid-19 – A probable gain

The rules around how the €750bn will be shared among countries was one of the most difficult issues tackled at the marathon summit.

Ireland was one of a number of countries that argued successfully that how the funds are apportioned should be calculated, not on past economic data, but on how Covid-19 hits our economy next year and into 2022.

Professor Barrett said: “The original proposal of the Commission was that the needs of states would be calculated with reference to their economic performance before Covid actually hit, which wouldn’t have suited Ireland at all.”

He says this original approach would have seen Ireland confined to gaining about €1.9bn to help with Covid recovery, as well as access to close to €1 billion in loans.

After last night’s deal, he said: “That should rise as a result of revision to the ‘needs calculation’ system. Ireland will get about €1.3 billion in the first phase of the recovery funds up to 2022. During that period about 70% of grants will be dispersed, and after that as a result of this negotiation, we may well get more.”

He said Ireland may not need to turn to loans from the EU: “We may or may not avail of the loans that are available, as we’re borrowing at very favourable rates anyway.”

Brexit- A probable gain

Ireland is likely to be one of the states hardest hit by Brexit. In tandem with the €750bn recovery fund, a €5bn ‘Brexit adjustment reserve’ fund has been secured to support countries worst affected by the impact of Britain’s exit from the EU on 1 January, with or without a deal.

Professor Barrett describes this as “probably the biggest win for Ireland”.

He says: “It’s kind of a Brexit emergency fund. Now there will be other states who will be able to access that.

“I think Belgium in particular has its eye on it because it will take a bit of a hit from Brexit, but the country that will be by far badly hit by Brexit is going to be Ireland, particularly if it is a no-deal Brexit by the end of the year.”

Agriculture – Not clear yet

Departing Brussels, the Taoiseach was keen to stress that in the overall EU budget protections have been secured for Common Agricultural Policy payments.

“From the Irish perspective we’re particularly happy that there is significant funding to protect the Common Agricultural Policy, which has always been a significant factor in Ireland’s negotiations with Brussels,” he said.

However, farmers are not convinced that this is a gain for Ireland and say that the new €356bn budget over the next seven years is substantially less than originally proposed.

The Irish Farmers’ Association is now calling on the Government here to make up any shortfalls.

The former diplomat and one-time Irish Ambassador to the EU, Bobby McDonagh, believes that overall Ireland has done well in these negotiations when it comes to agriculture.

He said: “Ireland can be quite satisfied with the funding it’s got under the Common Agricultural Policy.

“The overall amount on agriculture is more or less equivalent to what it was during the last budgetary period, despite the fact that the initial proposal was to have major cuts in that.”

He believes that a greater focus on food security in the pandemic has put this industry back at the centre of EU policy discussions.

“I think essentially, Covid has reminded people how important agriculture is. It was presented as an industry of the past, but I think that our partners now recognise that agriculture is every bit as modern as the digital economy. We need successful agriculture for food security and healthy food to feed our people.”

However, Gavin Barrett believes this is one area the new government will be monitoring closely.

“Obviously the farming vote is a crucial one for every Irish government and obviously farmers will want some assurance,” he said.

He said whilst overall CAP payments were protected, the difference between both sides as to whether Ireland did well in this budget may be explained by changes afoot in the way that subsidies are paid to farmers.

“There are going to be changes in the way in which subsidies are calculated. There is a difference in the way subsidies are paid across the European Union,” he said.

“Eastern European farmers tend to pay subsidies at a much lower rate than Irish farmers do, so that’s going to be levelled out over time. So large Irish farmers may well see reductions in the level of subsidies paid to them.”

Rural Development – A loss

The reduction in funding for rural development measures, or Pillar II, from €15 billion to €7.5 billion is a loss that is likely to be felt keenly in Ireland.

The Sinn Féin spokesperson on agriculture, Matt Carthy warned today that the Taoiseach had agreed to a deal in Europe, in which Irish people would pay substantially more to the EU budget, without any assurances about getting a return that protects budget lines of importance to Ireland’s future.

The TD for Cavan/Monaghan told the Today with Sarah McInerney programme on RTÉ Radio 1 that the cuts to the Rural Development Fund were “a devastating hit”, which he said could have long-term implications and “reach farther than Brexit ever could”.

Professor Barrett said it was areas such as these that suffered in the negotiations to find a compromise with the more frugal countries who had sought cuts in the budget.

However, he adds: “To soften the blow though – a number of member states were given some extra money so Ireland managed to get €300m for itself to compensate for that.”

Customs revenues – A surprising gain

National governments currently keep 20% of single market customs duties and levies on imports, and despite an initial proposal by the European Commission to reduce this to 10%, Ireland was among a number of countries who opposed this cut.

Member states can now keep 25% of the levy for themselves.

“I was a little bit surprised by this one,” said Professor Barrett, adding that this agreed increase could be even more important after Brexit with the UK potentially on the other side of a customs wall in a no-deal scenario.

“It’s actually been calculated to be worth about €170 million to Ireland which is not colossal in terms of the scale of things we’re talking about, but it’s not ‘chump change’ either.”

Climate change – Not clear yet

The EU’s flagship, Just Transition Fund, was one of the ways countries, including Ireland, which have been traditionally reliant of fossil fuels were being offered support to help move towards climate neutrality.

Now this will be €17.5bn, less than half of what was previously proposed.

“Ireland could really use this because we have a lot of work to do in preparing for climate transition and that’s really what that fund was aimed at,” said Professor Barrett.

“We probably will benefit from it, but because the fund is a lot smaller- not as much as we would have.”

Green Party MEP for Dublin Ciarán Cuffe said: ”It is disappointing that leaders failed to address the twin challenge of a global pandemic and a climate emergency with the resources that are needed.

“Instead, a small number of countries have decided that electoral politics back home matter more than EU solidarity.”

However overall, the deal earmarks 30% of the entire package for climate protection and says all spending must contribute to EU goals of cutting emissions.

This could see nearly €550bn spent on climate between 2021 and 2027, a massive sum, but far below the €2.4 trillion in investment that researchers say is needed to meet EU climate targets.

In order to pay for the budget and the recovery fund, an EU-wide tax on non-recycled plastic waste is scheduled for next year.

There are also plans for levies on polluting imports which should be ready by 2023.

Ireland – The big picture

Significantly, what has been agreed as a result of this deal is that Ireland will now become a “net contributor” to the EU budget.

Bobby McDonagh believes this is a good thing and “a sign not of weakness but of strength”.

“Our economy has grown dramatically, largely due to our membership of the European Union, and I also think that it’s wrong to look at one’s interests in the European Union in terms of net budgetary balances.

“Germany for example is, and always has been and will remain, a net contributor to the EU budget and yet Germany is the greatest beneficiary from the European Union because it benefits from the internal market and all that goes with that.”

The compromise on a recovery fund was also reached at the first summit at which the UK was not involved.

“The fact that there was a deal without Britain being involved is very significant. You may recall Brexiteers used to trumpet the idea that somehow the EU wouldn’t be able to make the sums add up in its budget without the UK’s contribution,” said Mr McDonagh.

“So, this package has been reached, not only in the context of the Covid crisis and having to adopt a special recovery package, but also in a context where Britain’s departure and its net contribution to the budget has been managed very smoothly.

“Overall, I think Ireland can be very satisfied both with an overall package that can be good for Europe and with the specifics of the package, which will bring benefits to Ireland.

“This is historic, both in terms of scale and in terms of method, and given the imperfection of life, I think it should be celebrated very strongly what we and our partners in the European Union have achieved.”

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