Merkel-Macron accord over €500bn reboot means 'fewer Irish people will lose their jobs' during Covid-19 crisis

Merkel-Macron accord over €500bn reboot means

The “breakthrough” agreement between Germany and France to push for the EU to share the costs of rebooting Europe’s Covid-19-devastated economy will mean fewer Irish people will lose their jobs during the crisis, experts have said.

The joint statement between Angela Merkel and Emmanuel Macron will help shatter opposition from EU states such as the Netherlands and Austria who have long resisted the idea their taxpayers should share the bills of others, and of the southern European states, in particular.

The statement late Monday between Ms Merkel and Mr Macron was, significantly, coordinated with the EU Commission. It will now in the coming days detail how the €500bn package of new money for the recovery package will be deployed to help European businesses and households.

Agreement still has to be reached between all the 27 member states but the bi-lateral agreement makes that more likely, experts said.

Fergal O’Brien, director of policy and public affairs at business group Ibec, said it looked likely the package will “eventually reach main street” in Ireland and mean that unemployment and the social consequences of the crisis will be less than they might otherwise be.

He said for Ireland the practical ways to tap the €500bn would be for the Government to support businesses facing liquidity crises, offering grants and by spending on infrastructure and supporting people getting back to work.

The package could come as a boon to the prolonged talks between Fianna Fáil and Fine Gael over forming a new government. “It will help the programme for government discussions in terms of devising a national recovery plan,” Mr O’Brien said.

Ben Tonra, professor of international relations at the UCD, said it was “a sweet, sweet” agreement and “a breakthrough” for Europe, adding that with Germany having dropped its opposition to debt-sharing that the Dutch and Austrians would likely follow through.

“The Franco-German agreement is huge. It is a massive step change. It is a big concession on part of the Germans. You are looking at the prospect of the European Union gathering debt through the budget set by the Commission on those areas directly affected by Covid on a scale that is quite extraordinary,” Prof Tonra said.

He said the Austrians and the Dutch will take comfort from the fact that the oversight of the huge spending will be done by the Commission. “I see it as more sweet, sweet than bitter sweet,” Prof Tonra said.

“Number one you have got the €500bn in new money to be spent by the European Union on Covid recovery programmes; No 2 you have the EU budget; and No 3 we are in the position of countries which can borrow at close to zero," he said. 

There was an immediate benefit to Ireland, as the implied costs of borrowing on sovereign debt markets fell by a significant amount yesterday, in the wake of the Franco-German agreement.

The yield or interest rate on the Irish 10-year benchmark bond fell to 0.12%, while the 10-year bond in Italy whose indebted economy is facing enormous costs in fighting the pandemic, also fell, to 1.59%.

Dermot O’Leary, chief economist at broker Goodbody, said for Ireland, the mention in the joint statement about tax reform and an “effective minimum taxation” meant there were “some strings attached” to the plan.

"The threat to Ireland’s corporate tax base is well known at this stage, but any further collective efforts will also include a deepening of the union,” he said.