Paschal Donohoe on trade tensions and Ireland’s place in a shifting global order
By now, Paschal Donohoe can measure his political life in budgets. Ten of them — each one marking a moment in Ireland’s shifting economic story. Only Seán McEntee, who delivered 11 across more than two decades, has signed off on more.
Some have been delivered as minister for finance, others as minister for public expenditure and reform. For a period, he did both jobs.
When I mention this to him, he smiles — half amused, half wary. “Answering the question would appear to indicate that I’ve spent a lot of time thinking about it,” he jokes. “So, I’ll just simply say I’m pretty high in the league table at this point now.”
Yet behind the humour sits a deeper truth. Few ministers have remained at the centre of government for so long — through the wreckage of the financial crisis, the tightrope of recovery, the shocks of Brexit and Covid, and now the challenge of managing prosperity itself.
Speaking to a room full of investors and business people at an event organised by Cantor Fitzgerald in partnership with The Currency, Donohoe reflected on some lessons and learnings from his time as a budgetary minister.
“It has been an extraordinary period and much as would be the case with any household or business within our country, just when you are hoping for a period of stability or relative calmness, something happens. And budget after budget has been influenced by that,” he says.
He talks about what he has learned — one lesson economic, the other political.
“The economic one is, I think, we don’t recognise enough the miracle that has happened in our jobs market in the Irish economy. It doesn’t get the scrutiny or recognition and credit that it deserves,” he says.
He recalls how, when he first began studying economics, much of the literature was about Ireland’s structural unemployment — about why work seemed perpetually scarce. Now, he notes, the country’s unemployment rate “begins with a four,” with more than 400,000 new jobs created since 2019.
“We don’t recognise how unique that is in the economic history of Ireland,” he says.
Then there’s the political lesson, one he has picked up through coalition government and the art of negotiation.
“It goes back to Michael Noonan – he and Enda Kenny were my great mentors and supporters when I began – and it is the continued value, when you are making economic decisions within coalition governments, of managing relationships, finding agreements, negotiating in a way that delivers outcomes that people can feel ownership over, and doing it privately,” he says.
The public interview came just weeks after Donohoe delivered his most recent budget, consisting of a €9.4 billion package, with his public expenditure colleague Jack Chambers. And he has also just returned from Washington, where he attended the annual IMF and World Bank meetings in his capacity as president of the Eurogroup.
The global shifts in a world of tariffs and trade tensions evident in Washington were, he concedes, key factors in the construction of Budget 2026.
“It was the single biggest factor because what happened with the acceleration and the shift of economic policy due to the election of President Trump were forces that reduced the medium-term growth outlook of the Irish economy… It was the decisive factor that influenced everything,” he says.
Donohoe attends the meetings in Washington twice each year. He felt the mood was better this month than it was in the spring, although he quickly caveats by highlighting the continuing uncertainty.
“In April, when we met, there was such uncertainty in the immediate aftermath of the tariff announcements that took place on ‘liberation day’. And if you look at where we are now in October, while the tariffs are now at a historic high versus where we’ve been over the last century of economic policy, they are at a lower level than looked likely in April, which at least is bringing some certainty to trading relationships,” he says.
“Running alongside that, the other source of positivity is what is happening in equity markets, particularly American equity markets, particularly the AI-related component of equity markets.
“So, the overall arc is up but the two issues that were perhaps leading to a degree of qualified positivity, and it is highly qualified, were the announcement from China regarding the supply of critical raw materials and then a questioning regarding the sustainability of where we are at the moment and the congruence between equity market performance and other macroeconomic trends that are not quite as positive. So overall better, but big questions still there.”
In a candid question-and-answer session at the Cantor Fitzgerald event, Donohoe answered questions on a range of topics, including:
The fracture in multilateralism and how Ireland can position itself in a changing world order
Corporation tax sustainability and a socially acceptable surplus
Current spending and the rising cost of running the state
Capital spending allocation and value for money
AI, digitisation, digital tokens: preparing the economy for new technologies
The housing crisis, delays, and legal challenges
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“We have to focus on capital investment, which we have done. The capital investment level within our economy next year will be just over €19 billion. It will be 5.2 per cent of national income, so our capital investment will be going up with all the positive effects and economic growth just as the economic model is beginning to shift, which was pulling our economic growth in the other direction. So, one will help offset most of the other.
“And then in terms of the new economic paradigm that is being shaped, I think it is a little early to be able to say that an integrationist way of thinking about the global economy is in permanent decline. I think what is very, very possible is you will continue to see very high levels of economic integration, but it might be moving at different paces, in different parts of the world.
“The two obvious examples of that are, despite everything, trade between China and America is still very, very positive. The forces of economic integration there are still strong. And if you look at where we are from a European perspective, the level of trade integration that Europe is aspiring to, the ambition level of that has now grown.
“So, I think we are likely to see a multipolar world in which we have different pillars of integration and, within those pillars, the pace of integration will be growing at different speeds and will be focused on countries and regions in which there’s a shared political outlook. And in that world, there are still immense opportunities for Ireland.”
“We’re going to be running a budget surplus this year of €10.5 billion, and even when you strip out the effect of the Apple ruling in the Court of Justice of the European Union, it will be the third year in which we will be running a very, very high level of surplus. The level of surplus that we are now running is at the higher end of what I believe to be politically and economically achievable and is a good share of the different analyses that have been done, indicating what share of our total corporation tax (CT) receipts may not be permanent.
“I’ve seen some say that we should be running a surplus net of what we believe to be a temporary CT receipts. That would indicate we would be running a surplus of north of €15 billion.
“But you have to examine what would be the level of a surplus beyond which questions of social and economic sustainability would be raised. So, I’ll give a very, very concrete example. Those who would have argued that we should have run a higher level of surplus during our period of hyperinflation or during the pandemic; that would have resulted in a poorer Ireland.
“I’ve always been keenly aware that as the person who is the leading proponent of running budget surpluses, not only do you have to run a budget surplus but you have to win the argument for running a budget surplus. If you don’t achieve both, you’ll do one without the other, and you have to get that balance right… There is no point having a budget surplus if the level of capital investment within the economy falls to a level that those who are helping you achieve the budget surplus ask, ‘What does the economy of tomorrow look like and do I want to be in it?’”
“Current spending over the last number of years was decisively influenced by what was happening with the rate of inflation. And if you look at a period in which we had inflation at nearly 10 per cent, then five per cent, it’s now back to two per cent, if current spending had not moved at a higher pace, the real value of social welfare benefits, the real value of the spending that we have in our schools and hospitals, would have gone down. And you don’t have to be too much of a student of history to know what can be the effect of inflation on support for centrist governments and a centrist way of running an economy.
“We were one of the few incumbent governments that got re-elected in 2024 in the aftermath of the spike in inflation. So, current spending over the last number of years was influenced by that, but the rate of current spending growth this year has been higher than we would have wanted. Minister Chambers and I have said that, and we have begun the journey now of moving that back to a level that’s more appropriate for our economy.
“However, that gets into terrain and gets into making an argument that is difficult because the key way of influencing the rate of current spending growth was to remove over €2.2 billion of one-off payments. And for those who’ve argued, and we need these people to make this argument, that the rate of current spending growth was too high, many of those arguments don’t recognise the fact that we removed €2.2 or €2.3 billion of one-off payments.
“Removing that from our current spending base is going to have a very big impact on our current spending for the year and a very big effect on what our spending plan looks like for 2026. So, it was on a higher level than I would have wanted, and myself and Minister Chambers would have wanted, and we’ve taken action now to moderate it and move to a different pace.”
“We got the balance at the upper end of what is appropriate, and if it had gone any further than that, we could have run into real challenges with capacities and strengths within our economy. And look, so much of this is, we are continually operating in a world of uncertainty, imperfect information. The speed of decision-making is accelerating. There is judgement that has to be applied to this as much as there is a degree of science, and we had to apply that judgement to where we ended up in capital spending. But I believe we have got the balance as well calibrated as we can achieve in the environment we’re in at the moment.
“In relation to bringing projects in on time and on budget, I believe overall we do better in that than we’ve managed to make the case for over the last number of years. If any of you have a new primary school in your community, and most of you will, have a look at the quality of that new school building.
“The vast majority of those are on time and on budget. It’s the same with building projects. We’ve done a better job with the National Broadband Plan than many thought was possible. Where we have struggled and need to do better on is the truly mega, big, big projects, and some very small things, which are small projects which have had a bigger cost, that have dented public confidence in our ability to do projects well.
“The number of mega projects that we’re about to do within Ireland at the same time is about to go up because we’re going to have a very big water project, we’re going to have a very, very big metro project, and we’re going to have a very big water project that goes across the country in addition to the big one in Dublin. We’re going to have to find ways of doing them better than we’ve been able to do in the past. And Minister Chambers will be bringing out a piece of work very, very shortly that will lay out our views regarding how we will do that.”
“We need to do better in Ireland and Europe with regard to it. There’s a seminal economic historian called Bob Gordon who talked about the development in general-purpose technologies. General-purpose technologies are the advent of a technology that will change everything. And we haven’t had one of those now for a very, very, very long time. This is one of them now. Artificial intelligence. Whether you call it artificial intelligence or augmented intelligence, this is a technology that will change everything.
“Those who are at the forefront of driving it, which is currently America and the Middle East, are at the forefront of experiencing the economic change that it will bring. They’re also at the forefront of experiencing the social change that it will bring, which will be equally profound.
“Walmart have just announced they don’t intend to hire anybody new for three years. You will see a growing amount of discussion regarding what is happening now in the American graduate recruitment market. So, these are equally very big economic developments that are going to have very big social consequences.
“But that shouldn’t take us away from the fact that we need to look at how we can accelerate the distribution and use of much of that technology within our own economies because it’s the use of the technology that will be the big deal. That’s the big deal. Rather than just who develops the technology. And we need to do more on that here in Ireland and in Europe… We’ve just launched a strategy in Ireland with regard to that.
“I very much agree with the analysis that we need to look at how we can speed up with regard to that. But also, with our eyes wide open to the fact that this is now a silicon-based form of intelligence in a carbon-based world. It’s going to change everything, and we have to have our eyes wide open to what that will mean within our societies and how we think about that as well. And we have to do both.”
“On the recent legal challenge to our apartment standards, while entirely accepting the right of anybody to take action on any matter they deem appropriate with our courts. I do know what our attorney general said about it as well, which is how seriously the Government is taking this, and the attorney general is taking it. And then more broadly, the minister for justice has said in recent weeks that we do need to assess what the balance is between the common good and the rights of an individual and the rights of a group to indicate their individual right. And I very, very much agree with that.
“We correctly look at the pace of delivery of very, very big projects and the country, at times, can correctly query, is this due to a lack of intent or a lack of money from the Government or from the State more broadly? One of the challenges that we have is moving at speed where planning applications can be so quickly challenged. It is a huge challenge for us overall. And if you’re operating in a world of inflation, which thankfully has moderated, every delay has a very big cost and impact on our ability then to deliver an individual project. This is a matter that we are taking very, very seriously at the moment.
“In relation to capital investment, firstly, when we started or when I started doing my first budget, the level of capital investment in our economy was around €3.5 billion or €3.6 billion. Even before we got to the recent decisions that we’ve made in the National Development Plan, that has nearly tripled [today]. There are very, very few economies that are doing that level of exponential growth in capital investment.
“In relation to where we are with water and where we are with our grid, one of the things that is clearer to me now is even as the most optimistic politician, and I’m very optimistic, I don’t believe there is any problem that we can’t deal with or get around or find a way of making progress on. The level of demand within our economy and the impact of that demand on our level of infrastructure has been higher than I expected was going to happen and that has meant that we need to have a faster period of catch-up, which is why we needed to do the National Development Plan. Put in place a further reprioritisation of energy and water. So, we are behind where we need to be but we are now taking lots of decisions to catch up.”
“The European project has never been more necessary, and the challenges and demands on the European project have rarely been more evident. And it’s never been more necessary because of the challenges and opportunities that are around Europe, being that no one country on their own can pursue the opportunity or deal with the challenge, which is why the contemporary rationale for economic and political integration is so high.
“The challenges have rarely been more evident because of the fact that we’re dealing with the largest war in Europe since World War II and we are seeing all the shifts in the global economic environment that we’ve just spent this interview discussing. In terms of what the mood is, the mood is one of determination mixed with realism.”