In the Golden State one thing was made very clear to Leo Varadkar. 

Foreign direct investment in Ireland from the biggest tech companies in the world is a package deal and with the thousands of jobs and the millions of euro in taxes comes a requirement for energy security. 

The Tánaiste was on a springtime trade mission to California, visiting Google and other “top-tier firms” when a senior executive explained their vision of this delicate ecosystem. 

Just as Switzerland’s status as a financial hub depends on its ability to securely store gold, the exec said, Ireland’s continued position as a tech hub will rely on its capacity to store data. 

“If the Swiss said to the banks, we want your staff here but can you store your gold somewhere else, it would be a strange policy,” Varadkar says, laughing at the prospect.

He is sitting at a mahogany table inside his office in the west wing of Government Buildings and rests a glass of water atop a thin binder of notes that he never opens.

He doesn’t move when speaking, doesn’t use his hands to express himself and, though he apologises in advance for a hay fever induced cough, his voice never breaks. 

On the deep window sill are two knitted Michael D Higgins tea cosies, a red moped helmet, and a signed Ireland rugby ball. 

A hurley rests on a radiator just below an enlarged stamp of Harvey Milk, one of the first openly gay elected officials in the US, and a print of the Hello Kitty Kumamon bear, a much beloved mascot of Japan, hangs beside his desk. 

He has just come from the Dáil chamber, where he and Pearse Doherty slung “cheap shots” across the room over the DPP’s review of a Garda investigation into Varadkar over allegations made against him under the Corruption Act, first-class champagne trips being taken by Mary Lou McDonald and party donations made by “vagabonds in caravans”.

It was a stormy exchange and Varadkar has since changed his shirt. 

But The Currency isn’t here for the zing of a cheap shot or even Bollinger, it has questions and gets answers about the future of FDI in Ireland, energy security, a potential trade war, recession and with potentially six months left as Minister for Enterprise, Trade and Employment, legacy. 

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We begin with energy security, the number one issue raised by multinationals on Varadkar’s trade mission. 

EirGrid, Ireland’s national grid operator, is under such pressure that the government announced last week a €350 million procurement of emergency generation for next winter. 

The move is a positive one Varadkar believes, as it enables the government to give reassurance to the foreign companies invested here that we will have enough electricity to keep going for the foreseeable future – the kink of course, is great big hulking data centres.

“One thing that was made very clear to me by big companies that invest in Ireland and are going to invest more, they are going to create more jobs in Ireland – is that they see the whole thing as an ecosystem,” he says.

“Where they have their people and where they have their talent and where they pay their taxes, is also where they want to keep their data.”

EirGrid has said data centres currently use 14 per cent of electricity in Ireland, and this could grow to between 21 and 30 per cent by 2030. 

Late last year the national grid operator implemented a moratorium on new data centre development in the greater Dublin region, because of a constrained energy supply in the city. As a result it decided that no new connection agreements for data centres would be provided until 2028 at the earliest. 

Data centres that already have planning approval were not affected but the move was met with chagrin from multinationals invested in Ireland, and those that might want to be. 

With 1,000 new jobs announced by TikTok, Meta expanding, a record year for FDI in Ireland, and some still unannounced expansions into Ireland in the pipeline, Varadkar has a balance to find. 

“One of the things we are looking at is whether we can prioritise data centres”

What has to come first, he says, is powering the social infrastructure of people’s homes, schools and hospitals, as well as the economic infrastructure of pharma plants and sewage treatment plants. 

But there will also be a revised data centre policy coming in the next few months from his department and this could see the introduction of a preferential system. 

“One of the things we are looking at is whether we can prioritise data centres, where they are for an entity that has a significant operation in Ireland already,” he says.

“Not necessarily speculative data centres, but ones where it is storing data for companies that employ thousands of people here and pay hundreds of millions in tax.”

Such a development could allay the concerns of companies like Google and Amazon, both of which filed submissions to the Commission for Regulation of Utilities (CRU) last year over the potential vetoing  of new data centres. The submissions were obtained under the Freedom of Information Act and reported in The Irish Times last April. 

For its part, Google warned that a ban on data centres would send the wrong signals about Ireland’s ambitions as a digital economy and render any further investments in its infrastructure in the country “impossible”.

And Jeff Bezos’s behemoth Amazon criticised the underdevelopment of the grid over the past decade, and said opportunities had been missed to “prepare the grid for growth and investment, and equip the grid for the integration of more intermittent resources”.

“One thing I always say about data centres,” Varadkar says, “and I think it is important to say it, you often hear the rhetoric of them sucking energy out of the system but they do pay for it and data centres can help to generate the revenue we need to invest in renewables and can be used in stabilising the grid as well.”

Fields of oil

While eradicating fossil fuels from the energy supply is the goal, it is likely that Ireland will take a full generation if not longer transition to being fully powered by renewables.

In the very long meantime there is a pecking order for the fossil fuels being used to power the country. Varadkar sees natural gas as the transition fuel, and below that coal and oil. 

But rumbling away in the south-west is a row over the development of Barryroe Oil Field, potentially one of the largest oil fields in Europe, off the coast of Co Cork. 

Providence Resources, the oil exploration company, is claiming they have been held up for six months from moving forward with the opportunity there by Minister Eamon Ryan’s inaction on signing a renewal for their licence for a well appraisal.

But Varadkar, while being open that he may not know all the facts about Barryroe, brings a different perspective on the dispute which is later confirmed by his aide over the phone. 

In order for the government to renew the licence for Barryroe, the entity must undergo an economic assessment, which is ongoing but due to conclude soon, and there is a question mark over whether Providence has the financial backing to move forward with the next stage of its appraisal. 

“My understanding is that to get the renewal, part of the process is that you have the financial backing to actually do it,” Varadkar says. 

“These drills cost like a hundred million or something, and part of the condition of renewing a licence is that you are able to demonstrate that you have the financial wherewithal to make use of it and I think that may have been the issue.”

In a statement released on Friday, the board of Providence said it was seeking to raise $1.8 million “for working capital needs, as well as to pursue its lease undertaking application for Barryroe”. The firm was offering a 16 per cent discount for investors on its closing price on Thursday evening. 

Whether Providence gets the funding, and subsequently the licence, for now remains unknowable but it seems there is very little appetite in government buildings to look to new sources of oil as a panacea. 

A bit of a danger

Varadkar pauses a beat before giving an answer to whether he is concerned there will be a trade war between the European Union and Britain. 

“Nothing is impossible,” he says. 

The British government announced earlier this month plans to override key parts of the Northern Ireland Protocol within weeks. 

“I don’t think the British government is currently making its decisions based on what is right for Northern Ireland”

If the UK unilaterally abandons agreed elements of the deal that create barriers on goods trading between Northern Ireland and the rest of the UK, the EU has the power to suspend parts of the post-Brexit trade deal.

“I don’t think the British government is currently making its decisions based on what is right for Northern Ireland or what is best for the British economy, and that makes them a bit of a danger to us quite frankly,” Varadkar says.

“It is hard to understand the games they are playing in and around the protocol, this is a government that likes to make threats.  

“They have this new legislation now to revoke the protocol, but it now seems they won’t bring it to second stage unless the DUP commit to going into power sharing, which they won’t.

“I don’t anticipate there will be a trade war, but they can’t revoke the protocol and break an international treaty, without thinking that there will be a response from the EU and there will be. 

“Potentially, we would suffer the consequences of that because it is such an important trading partner for us, but we can’t allow them to resurrect a threat of a hard border between north and south. 

“We can’t allow them to jeopardise our place in the single market, those things are just too important and they transcend shorter term economic concerns.”

Target of thumb

In a keynote speech to the Institute of International and European Affairs, the Irish think-tank, last March, Varadkar road tested his new enterprise policy. 

He said at the time that “the pace of challenges and the range of changes now facing us is so fundamental that we must re-evaluate”. 

Citing Ireland lagging behind in innovation and its ability to scale up SMEs into large global companies, he set a target of two unicorns a year for Ireland. 

The target came as a surprise to some in the start-up ecosystem, as they queried what the strategy is going to be to support that. 

“I guess I just liked the idea,” Varadkar says now, “but it’s a target of thumb if you like. The kind of things we can do to help is the investment in digital hubs, the finance, the government grants, the tax regime but I don’t think it should all be about valuation. 

“What Enterprise Ireland (EI) would say to me and they are right about this, is you need to look at things like sales, how many people companies actually employ. 

“So what we will probably do in the new white paper is refine that target so it is not just, lets have two unicorns a year based on valuation. 

“We will set targets based on start-ups and scale-ups that take other criteria into account that are just as important and maybe more important which would be volume and value of sales, value of exports, number of people employed.”

One of the common complaints about EI is the amount of bureaucracy and compliance involved in applying for funding, but these are processes that are unlikely to be streamlined to mirror the pace of traditional venture capital funds. 

“There is always going to be rules and regulations and red tape that wouldn’t be there if something was entirely in the private sector, and doesn’t come back on the taxpayer potentially,” he says.

“So I think that difference has to be recognised and accepted, but what the government is doing is more funds outside of EI. So ISIF is that, and we are going to see how that goes.”

KEEP talent

What Varadkar is looking to change are two of the key push factors for Irish founders and tech talent, to leave Ireland and work elsewhere – the difficulty of attracting tech talent and the levels of capital gains tax (CGT) on the sale of a business. 

The battle for talent is one which dominated by a perception of Irish tech being the poor mouth of the giants that have set up here. 

As the common narrative goes, multinationals are hoovers with the war-chests and perks to drain talent out of the start-up ecosystem.

But it’s not the whole story, as Sean has written about previously, in Silicon Valley multinationals are seen as talent factories, rather than talent drains. 

A key difference between Ireland and the US is share options. In the US they are a valuable part of an employee’s compensation package making up for employees taking salary cuts and taking risk to join a new venture. In Ireland under the KEEP share option incentive scheme, less than 200 people are registered for it. 

The reasons are well vocalised by the start-up community – registering for the scheme is finicky, requires lawyers and their fees, and a lot of Irish start-ups who register in the US to streamline their funding, not for tax purposes, don’t qualify.  

“The take up has been disappointing so the Department of Finance is doing some work at the moment with a view to making changes in the forthcoming Finance Act that would make that better,” Varadkar says.

“A lot of those small companies find it hard to hold on to talent and it is through share options and so on that they can retain people.”

While Varadkar can’t give the specific details of a revised KEEP scheme, as it isn’t fully decided upon, the objective is to make it more attractive and to make sure more companies qualify. 

CGT is another issue for founders and entrepreneurs, who are currently limited to a lifetime reduced rate of 10 per cent on one million euro gain from the sale of a business. This is reduced from the normal rate of 33 per cent.

While there are changes coming and the government is looking around at what other countries are doing, including the UK’s approach of a lifetime limit of up to stg£10 million, Varadkar rules CGT cut across the board.

“That is not a runner, certainly not politically viable. But if we could do something focused on entrepreneurship, that is the kind of thing we might be able to get over the line,” he says. 

“There are a few options, one is the million euro limit, the other is making it not a lifetime limit, but a per venture limit for example. There are a couple things we are looking at.

“We are definitely looking at what other countries do and making sure that we are competitive in that space.”

While there is a push for entrepreneurship, there are also concerns in government that it will look too focused on tech and on tax breaks for a relatively small portion of the population. 

You said it, not me

Asked about a potential global recession, Varadkar is buoyant about Ireland’s prospects of avoiding one, and even optimistic about opportunities a slowdown in investment could bring.

“I am kind of sorry that more people didn’t listen to me”

“It would give us time to build up capacity and deal with some of the shortfalls in infrastructure and talent and the workforce. One thing we definitely won’t do is cut back on public capital spending. We had to do that after the global financial crisis 12 years ago, because we had no choice and we are in a different space now,” he says.

“I predicted that the economy would take off like a rocket after the pandemic restrictions were ended and it did. I am kind of sorry that more people didn’t listen to me, because they might not have reduced their workforce, or scaled back as much as they did.”

I ask if he is talking about Dublin Airport Authority? 

“You said it not me,” he replies. “and they weren’t the only ones.

“I think a lot of people in business underestimated the extent to which the economy would bounce back and they found themselves short staffed and without adequate capacity to avail of economic growth that is happening now. I don’t blame them for that.  

“You have to make decisions based on variables, but it didn’t surprise me that the economy bounced back as quickly as it did. 

“But the events of the last few months, inflation, rising interest rates, which seem now inevitable, and events in Ukraine, have changed things, but I think for Ireland and I would be confident that we would avoid going into recession.”

While some reports this week have indicated that the government will have to do more to address the cost of living crisis before the budget in three months’ time, Varadkar gave no such indication in this interview. 

For now the biggest danger, he believes, is the “paradox of thrift”, an economic theory pioneered by John Maynard Keynes that argues personal savings can be detrimental to overall economic growth. It is based on a circular flow of the economy in which current spending drives future spending.

“There are a lot of people who are struggling to make ends meet, wondering how they are going to pay the bills and making difficult choices as to what they spend money on,” Varadkar says.

“At the same time, one in four of every euro earned in Ireland is being saved, because people who do have money are now afraid to spend and invest and we need to avoid getting into that spiral.

“What the government can do in that budget by helping people out with the cost of living, can restore confidence and help us to avoid getting into that downward spiral.”

Rather than individual measures, it is thought the government is considering a whole welfare package, including pension hikes and tax cuts. 

With less than six months to go until he swaps Tánaiste for Taoiseach, depending on the outcome of the DPP’s investigation, Varadkar is shoring up a legislative legacy for his time in this department. 

“So there are three things that I set out at the start; one was to help businesses to survive Covid and Brexit and now the Ukraine crisis… which I think we have done,” he says.

“The second was to get to record levels of employment, which was 2.5 million, we met that target and the third, which I am doing a lot on at the moment, is improving terms and conditions for workers.”

A recent announcement that the minimum wage would be phased out for a living wage, is part of his objective to improve terms and conditions for workers.

“I think if you are going to deal with the problems around recruitment and retention and build a more inclusive society and a better economy, actually terms and conditions and pay are important.

“I am pressing ahead, even though I know some in the business community have reservations about it, but I am pressing ahead with sick pay, with living wage, additional public holiday, protecting tips, improving redundancy payments.

“My flagship legislation as health minister was free GP care for the under 6s and over 70s, my flagship legislation as Minister for Social Protection was paternity benefit and I would certainly like statutory sick pay to be the thing that probably wouldn’t have been done, had I not been given the privilege of this job.”