Interview with Leo Varadkar TD, Tánaiste, Minister for Enterprise, Trade and Employment, Government of Ireland

19 May Interview with Leo Varadkar TD, Tánaiste, Minister for Enterprise, Trade and Employment, Government of Ireland

Q: I’d like to begin our interview today by gathering your views on the evolution of the Irish economy in recent years. Under your leadership as Prime Minister, Ireland solidified its position as the EU’s fastest growing economy. Again in 2020, with a new government in place and in the midst of a pandemic, Ireland became the only EU economy to show positive growth. What conclusions can be drawn about Ireland’s economic success, and what are some of the facts and figures to support this? 

Leo Varadkar TD: One thing that is certain over the past few decades is that Ireland has really benefited from this period of globalization and free trade. We’ve become the European base for a lot of big companies, particularly US companies, and our position in the European Union, in the single market in the Eurozone, has been the big advantage in that regards and there’s no real political debate about that in Ireland. There’s certainty about our European core, our European path, we want to be at the center of Europe. We are also a country that has been open to trade, open to migration, particularly skilled migration from around the world, there’s no anti-immigrant party as such in Ireland. And over the years, we have invested in education, which would be really important, we have a very good tax offering which matters as well, we have a really good enterprise agency in IDA Ireland, bringing business into the country.  We have strong export sectors, particularly in areas like agri-food, for example. And also sound management of the public finances. So they’d be the ingredients of success. But we take nothing for granted, and we know that there are lots of countries that are envious of our position and keen to eat our lunch, so we’re always trying to make sure that we’re ahead of developments that are going to happen, because the world keeps changing.

Q: As you have pointed out, Ireland has seen great success in attracting FDI, becoming the European hub of choice for multinationals, but also in catapulting the development of innovation-driven sectors like tech, life sciences and financial services. What are your views on what some economists call “the dual economy” of Ireland and the goal of achieving balance and symbiosis between the domestic economy and export-oriented multinationals?

Leo Varadkar TD: The areas that are very strong are tech medical devices, pharmaceuticals, and financial services particularly like aviation leasing, and then, very strong domestic industries around food and drink production, and tourism which was a huge employer before the pandemic. But even so, the vast majority of people in Ireland are either employed in small businesses or in the public sector and not in multinationals, even though there is a lot of employment in those as well.

It is true that we have a two-tier economy. That’s not unusual in the world:  in any country you’ll see disparities between different sectors, different regions and different parts of the country. But that was very stark last year where our economy grew overall because of the strength of our export sector and the trade sector. But our domestic economy actually shrunk by 5 or 6%, our domestic demand fell and that’s reflected in the fact that there are about 400,000 people today receiving income support from the government who weren’t before the pandemic. In a country of 5 million people that’s a lot. So we’re very keen to get through this pandemic and to reopen those employment-rich sectors like construction, retail, personal services and hospitality, but even still we think it could be 2023 before we are able to get back to full employment.

Q: With vaccination campaigns being rolled out across the world, there is hope that the COVID-19 chapter will come to an end within the next year. How would you describe Ireland’s resilience during the pandemic, and what kind of successful strategies has the Department of Enterprise implemented to tackle unemployment and other challenges resulting from the extended lockdowns?

Leo Varadkar TD: We’ve had quite severe lockdowns in Ireland and quite long ones. If you look at the Oxford Stringency Index we’ve been among the strictest in terms of the public health restrictions on international travel. That is reflected in a much lower death rate, much lower mortality rate per million population; the lowest in Europe really only after Estonia and Denmark and maybe Finland, much lower than our nearest neighbor and much lower than the rest of Western Europe.

But that has had an economic toll. We were in the position of course, to borrow so we have borrowed a lot of money, by 20 billion last year. We may well borrow something similar this year. We’ve used that to supplement incomes; our basic welfare system didn’t provide enough income to people who lost their job suddenly, as a result of the pandemic. So we introduced a higher welfare benefit for people who have lost their jobs, and we’re subsidizing the wages of companies that have seen their turnover fall by more than 30%. And for businesses that are closed by government order there’s a weekly payment that they get for being closed to cover fixed costs. There’s also government backed loans and we reduced VAT. So we’ve done a lot of things.

We would anticipate that, as the economy reopens over the next few months, we will see a big increase in consumer spending and consumer demand. There’s a huge amount of savings now in the Irish banks, because people have been unable to spend so we expect, like they’re seeing in Britain, a huge bounce back in domestic spending and demand. But we are concerned that that would be temporary and we don’t want to remove the supports from business, the wage subsidies, the tax concessions and low cost loans for a good few months, because we don’t want that consumer boom to be short-lived and there’s a real risk of that. And there’s also the risk of course – we don’t like to talk about it – of the possibility that this pandemic isn’t over yet and we may yet face another serious wave of infection in the winter. It’s only when we’ve got through another winter that we can really say this is behind us.

Q: One of the things that I was talking to Minister Paschal a few weeks ago was the emerging opportunities coming from Brexit. Despite taking backseat during the initial COVID-19 outbreak, BREXIT finally reached culmination after several years of nail-biting suspense. Ireland has been on the front line of EU negotiations with the UK and today continues to be one of the most affected countries, both in terms of challenges but also opportunities. What are your views on the current state of relations with the UK and what are some of the clear and strategic opportunities that Brexit has brought for Ireland?

Leo Varadkar TD: Brexit isn’t good for Ireland and had to be good for Ireland because the UK is our biggest neighbor and one of our most important trading partners. The pandemic has masked the effects of Brexit. We don’t really know how much trade has fallen and we don’t know how much is the pandemic and how much is Brexit, but it seems to reduce trade by a lot. That’s even before Britain has introduced its border control in its customs control. Brexit is still unfolding and it will be towards the end of the year before they do that. But, above all, aside from being economically damning for Ireland, it is destabilizing as well and that’s very much the case in Northern Ireland where society is very divided, one part of UK that did not vote for Brexit, but largely broke down on Catholic parts and Irish-British lines, unfortunately, one that now is very divided on the protocol, on the system that we put in place to get around some of the issues created by Brexit, although there is still a majority support for it in Northern Ireland and I don’t think that will change, but it also destabilized the United Kingdom. We just don’t know what’s going to happen in Scotland where there’ll be a second referendum there. If that happens and if it’s successful, that will have an enormous impact again on Ireland. Brexit is a political problem as much as an economic problem because it’s destabilizing Northern Ireland and the United Kingdom, which is our biggest neighbor and of course that’s going to have serious effects on us.

There are some advantages. We have managed to attract some financial services companies that have moved operations from London. If people are thinking about basing their European operations, they are now even more likely to think of Ireland than England, because we have all the advantages of the UK in terms of being English speaking, common law, a business culture that’s very similar to that of North America but very definitely in the Eurozone, in the European Union. And we have a unique advantage now in that we have access to both the labor market of the entire European Union, because we’re in the EU, but we also have access to the labor market in the UK because of the common travel area. So if you base your operations or your business in Dublin, Cork, Killarney or Limerick, you can hire British citizens or EU citizens without any need for visas or permits. That’s actually a new advantage in the battle for talent. But we would much prefer that Brexit never have happened and saved the character of the European Union as well a little bit away from a protectionist view. There has been a shift which is not to our advantage.

Q: From the perspective of your Ministry, what are Ireland’s biggest strengths in innovation? What strategies are still necessary to boost expenditure in R&D to reach the levels of Sweden or Austria, EU leaders that spend over 3% of GDP? 

Leo Varadkar TD: We’re a long way off where we should be in terms of research, development and innovation. One of the things the new government has done since it came to office just last year is to establish a new government department that brings together higher education, further education, research, innovation, science, with ties to industry. And now it’s a standalone government department in its own right. We do have a good knowledge in development box and R&D tax credits which help and we’re increasing Direct Government Investment as well. One of the funds that I am in charge of is a disruptive technologies innovation fund, where government is investing in development of new technologies, products and services and taking a risk, but they could be very successful. And also one of our agencies, Enterprise Ireland, makes equity investments in startups and in companies that are developing novel products and services. We expect to get a very good return on them. And obviously we are trying to invest on universities to bring them up of the rankings.

Q: What types of strategic projects are you leading to build closer ties between government, private sector and research institutions to continue to foster Irish innovation?

Leo Varadkar TD: We’ve been doing that for quite some time. There are institutions like NIBRT Institute or like Tyndall. They’re really establishing partnerships involving government, industry and the education sector. They have worked well. It is an area which we could be investing more and should be investing more, but we do have competing priorities and competing demands, because we’ve only become a rich country recently. We have infrastructural deficits around housing and transport, in particular. We want to totally change our electricity system and really become a renewable electricity exporter. The demand for investment is huge and we have a lot of different priorities that we have to meet and want to achieve.

Q: Ireland has in recent years made giant leaps to become a greener economy, embracing sustainability throughout all levels of society and tackling climate change head on. What are some of biggest challenges that continue to exist today, ones that you can address from your Ministry and what is your own personal vision for Ireland’s role in the global pursuit of a true circle economy?

Leo Varadkar TD: We adopted our first climate law back in 2014 and we’re in the process of adopting a new one. That puts into law reducing emissions by 51% by 2030 and then zero by 2050, and there’s a whole system of carbon budgets and governance that’s going to make us do this, which is essential. From my own point of view, being in charge of industry, industry accounts for about 13% of emissions, and it’s particularly concentrated in sectors like cement for example. Some of the big production factories are developing plans to reduce that and reduce it significantly. Particularly we have big energy demand from data centers which we want to be in Ireland; they’re going to have to pair it with green energy. And we’ve pretty much turned off coal and peat, and we’ve banned the exploration of oil and gas, so we’re really serious  about going renewable, but it’s going to take a lot of investment in the grid, and a lot of investment today in offshore wind in particular.

One of the things that we’re trying to achieve as a center right government with the Green party – and it’s a different combination, probably similarly to Austria in Europe – is to really marry climate action with economic progress. A big part of my role as Business Minister and Minister for Employment is to make the case that climate action will create jobs, will create new businesses, will create wealth, will allow for import substitution, because a lot of people in business and industry see it as a cost, a regulation and a burden, and we need to shift that. Usually, when you adopt new technologies it creates more jobs.

In terms of innovation we have a huge investment program now underway, called the National Broadband Plan that’s already started. It’s already connecting homes and farms, and that will connect 97% of homes, farms and businesses to fiber in Ireland. We will have that done in the next five to six years, so one of the first countries in the world that will be fully hooked up to fiber, no matter where you’re located.

Q: Ireland and the US have very close historical ties. Many speak of the opportunity to tighten relations further considering President’s Biden’s Irish heritage. What are your personal thoughts on the current relationship with the US and what do you consider to be some of the most attractive business opportunities that exist today between both countries and in both directions?

Leo Varadkar TD: The new administration and the election of President Biden is a real opportunity to reset the relationship between Europe and America, to rebuild that Atlantic Alliance, which is essential to our future prosperity and our future security, given that there are many States and many parts of the world that don’t share our values and some that don’t wish us well. It’s more important than ever that Europe and America should work together and to try to do so within a multilateral framework. Biden rejoining Paris, and the appointment of a new director general in the WTO, these are all really good signs for the future, to restore that old alliance between Europe and America that dominated the last century.

And we would hope that Ireland can play a role in that. We’re realistic; we’re only 5 million people. But this is a President that takes his Irish heritage very seriously. I’ve met him several times, he means it, he believes it, he has a particular affection for Ireland, a lot of people in his administration do too. And we have such strong economic, cultural and family links between Ireland and America that we’d like to see ourselves as perhaps being a bridge between Europe and America, something I know the Prime Minister Taoiseach is working on and something I’d be helping him with.

Q: Concluding remarks and final message to the readers of Foreign Policy.

Leo Varadkar TD: In a world now that is very uncertain, in a period of enormous change, we have in Ireland a stable liberal democracy, one that is at the heart of the European Union, the common European home that we helped to build, one that is very much committed to the multilateral order to the United Nations, very proud to be serving on Security Council, the World Trade Organization and dealing with the world’s many problems and opportunities on a multilateral basis, so we’re a strong partner for anyone who shares our values and is willing to deal with us in an open way.