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Taoiseach can't rule out Ireland slipping into recession, calls for greater EU flexibility on VAT

‘No one can be certain about what will happen over the course of 2022,’ the Taoiseach said.

Image: Alamy Stock Photo

Political Correspondent Christina Finn reporting from the United States.

TAOISEACH MICHEÁL MARTIN has said he cannot rule out Ireland slipping into recession this year due to the conflict in Ukraine.

Speaking to reporters in Washington DC today, the Taoiseach also said he would like the EU to show greater flexibility on the VAT Directive as he said it would give the Government “more options” to deal with rising inflation and energy costs.

It follows an announcement by Bord Gáis Energy yesterday that both electricity and gas customers will face steep increases in their bills from next month.

When asked about Ireland’s economic outlook and the possibility of a recession, Martin said: “I can never promise anybody about economic cycles.”

He warned that as an “open, exporting economy”, Ireland could be impacted by a wider economic downturn in countries like the US and the UK despite forecasts currently predicting growth. 

“If they come under pressure invariably our companies don’t sell as much,” he said. “The jury is very much out on that. There will be a price for this war.”

The EU are currently in discussions about the likely impacts of the war in Ukraine and the impact it will have on the Eurozone economies.

Martin said that President of the European Central Bank Christine Lagarde gave a recent presentation to EU leaders on whether an EU-wide stimulus package, similar to the one launched for the pandemic in July 2020, will be needed to “to try and make sure we wouldn’t go into recession, so we would maintain growth”.

“No one can be certain about what will happen over the course of 2022 in respect of the economic situation,” he said.

“We were doing very well, the projections are still that Ireland will grow and that we will not be in recession. That’s the projections.

“But this could this could unfold in a number of different ways and we can’t be certain about that at all.”

His comments follow those of Finance Minister Paschal Donohoe, who told reporters in Versailles last Friday that he expected the economy to “grow at a pace that is different and slower than what we would have anticipated”.

“We came into these extraordinary challenges with a recovery of real momentum with virtually every economy in the Euro area due to get back to the pre-pandemic levels of growth by the end of this year,” Donohoe said.

“We approach this terrible moment with a level of unemployment at an historic low. So we have a very high level of momentum going in to this terrible challenge.

“So while the uncertainty is still high, I do still expect to see the economies to grow this year.”

Cushioning the blow 

With discussion turning to whether Ireland could be facing into another downturn, pressure is mounting on the Government to take further steps to deal with the rise in energy costs and cushioning the blow for the public.

Martin has said the EU Commission will come back with measures on how to deal with the rising cost of energy at the end of March.

The Journal asked the Taoiseach today about the pace at which the EU is moving to deal with the rising cost of living, but he said that Ireland moving unilaterally on issue would be “very problematic”.

When it was put to him that waiting until the end of the month for solutions from the EU might be too long a wait for some, he replied:

It’s a bit more complex. It’s not that simple; [that's] what I would say back, and I think Europe is moved very fast on a whole range of fronts. This is a much more complex situation in terms of market interventions fundamentally, are by their nature, can appear very simple in the beginning, but they have consequences.

It has been warned that if Ireland were to slash its VAT rate on energy now, it would lose its EU derogation, and the VAT rate would jump back up to 23% once the crisis is over.

“We’ve moved faster than many EU member states,” Martin continued, adding that the Government “can’t and will not be able to shield the entire population from the full impact of this war on fuel prices and energy prices”.

“There are limits to what any Government can do in a situation like this. And that is why this war should end,” he said.

‘Let’s call a spade a spade’

Speaking about Ireland’s response to the conflict in Ukraine, Martin ruled out sending any Irish weapons to Ukraine, despite pleas from the Ukrainian President Volodymyr Zalinsky to the US Congress this morning for more help.

Martin said that he believed the Irish people wants the Government to do “everything we can” to support Ukraine.

Asked whether this could include supplying anti-tank weapons held by the Defence Forces, the Taoiseach said that there would be no change to the current policy of sending only non-lethal aid.

However, he reiterated his call for a discussion on neutrality to be held after the war in Ukraine ends.

“Ireland is not a military power. Let’s call a spade and spade,” Martin said.

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“Our greatest strength is in the humanitarian side, our greatest strength is in the peacekeeping side, that’s what we do well.”

The Taoiseach said that Ireland’s neutrality had not prevented the EU from supplying arms to Ukraine.

“I believe we have to act in accordance with our current policies, and it’s important we maintain consensus in Irish society at the moment,” he said.

“And it’s by no means clear that we should end our military neutrality right now and nor do I think it would be correct to do it in the middle of this crisis.

“I think the broader issue of military neutrality does need reflection – I’d be straight up about that. As someone who’s been a supporter of that, but I think the world is changing.

“This is a war against democracy – and I think we have to have this conversation.

“We’re not politically neutral and we’re not morally neutral. And as the world changes, our position has to evolve, in my view.”

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