* Donohoe to replace Centeno on July 13 until end of 2022

* Eurogroup decides bloc’s economic policy, manages crises

* “I will seek to build bridges,” Donohoe says after
election
(adds Gentiloni, details)

By Francesco Guarascio and Philip Blenkinsop

BRUSSELS, July 9 (Reuters) – The Eurogroup of euro zone
finance ministers on Thursday elected Ireland’s Finance Minister
Paschal Donohoe as its new chair, a job that will see him try to
steer the group’s coronavirus-damaged economies out of their
worst recession.

Dubbed “Prudent Paschal” by some local media, the Dubliner
eschewed demands for bigger tax cuts and spending increases to
deliver Ireland’s first budget surplus in a decade. He is also
strongly against a potential EU tax on digital firms.

Donohoe was elected after two rounds of votes in which he
defeated Spain’s Economy Minister Nadia Calvino and his
Luxembourg counterpart Pierre Gramegna.

He will take over from the outgoing president Mario Centeno
on July 13 and will serve a two and half year mandate until the
end of 2022.

Despite criticism for its opacity, and recently for its
perceived irrelevance, the Eurogroup remains a powerful
institution which played a key role during the financial crises
of the last decade, ultimately helping to avoid the collapse of
the common currency.

Donohoe will have to steer the 19-nation euro zone out of
its worst ever recession, with the European Commission
estimating the bloc’s economy will shrink by 8.7% this year
before growing by 6.1% in 2021 – should the coronavirus crisis
be under control by then.

He will have to mediate between a southern bloc which
supports a permanent watering down of the bloc’s fiscal rules
and a northern front led by the Netherlands that prefers a quick
return to Brussels’ checks on national budgets.

Requirements that states keep fiscal deficits below 3% of
gross domestic product and reduce high debt have been suspended
during the pandemic, in an unprecedented move.

“As President, I will seek to build bridges amongst all
members of the Euro Area, and to engage actively with all member
states, to ensure that we have a consensus-based approach to the
recovery of our economies and our societies,” Donohoe said in a
statement after his election.

He added that fiscal policy in the euro zone should return
to normal only after the recovery is well underway.

EU economics commissioner Paolo Gentiloni said he was
confident Donohoe will play a crucial role “at a time of
unprecedented challenges” for the euro zone.

CENTENO FAREWELL

“In times of crisis the appropriate fiscal stance is one
supportive of economic activity. We must not rush in pulling
back our economy stimulus as this may harm our economy,”
Portugal’s Centeno said in his farewell message.

But, maintaining his traditionally balanced approach, he
added: “What is temporary should be treated as temporary”.

Centeno fully saw his role as a mediator, in the footsteps
of Luxembourg’s Jean-Claude Juncker.

Juncker held the post from its creation in 1998 until he was
replaced in January 2013 by former Dutch finance minister Jeroen
Dijsselbloem, who was seen as less diplomatic.

(Reporting by Francesco Guarascio @fraguarascio and Philip
Blenkinsop in Brussels; additional reporting by Belen Carreno in
Madrid, Padraic Halpin and Conor Humphries in Dublin; editing by
William Maclean)