Clash over recovery cash intensifies

Divisions are still severe on many aspects of the fund and the seven-year budget

Photo: EU Charles Michel.

Any forecast about the outcome of the first face-to-face summit in Brussels since the Covid-19 outbreak is a tricky exercise when it comes to discussing the pact's next seven-year budget and its generous recovery fund that have to heal EU economies from the consequences of the pandemic. The meeting of the EU27 leaders starts on Friday, 17 July, and will continue on Saturday, 18 July, but observers are very cautious in their predictions, as a breakthrough during this - perhaps not the last - summit for this month, is in question.

It is apparent that the differences are still significant on almost all issues between the camps backing the solidarity approach and the so-called 'frugal four' - the Netherlands, Sweden, Denmark and Austria, which are against the grants and are pushing for responsible spending. Divisions exist on the size of the recovery fund, the grants to loans ratio, allocation key, governance and conditionality on tying the portions of the money with the rule of law. Disputes also occur over own resources, and on the size of the rebate, so it is expected this sitting to be arena of a fierce battle and shrewd bargaining for every cent of the future MFF.

“A deal is essential. Now is the time,” European Council President Charles Michel wrote in his invitation letter to EU27 leaders. He acknowledged that finding agreement would require hard work and political will on the part of all. We will need to find workable solutions and come to an agreement, for the greater benefit of our citizens, he stressed.

Similar is the attitude of the Germany's Presidency of the Council of the EU. German Chancellor Angela Merkel, speaking last week before the European Parliament, called for “an agreement to be reached this summer on the outstanding EU financial issues”. The message after her meeting with Italian Prime Minister Giuseppe Conte in Meseberg Castle earlier this week was also with solidarity flavour. Italy was particularly hard hit by the spread of the coronavirus, she said, adding that “it's our duty now to act in a spirit of solidarity in order to overcome the consequences of this pandemic”.

Since the last European Council virtual meeting in June, President Michel has spoken and coordinated with each leader individually and taken a due note of their concerns. “On that basis I have put forward a proposal to address the key difficulties and to build bridges between the different positions,” he explained, presenting on 10 July a new version of the negotiating box.

The EUCO President proposed 2021-2027 budget of a €1.074tn, a bit less than his proposal in February - €1.094tn, and smaller than the suggested by EC President Ursula von der Leyen in the recovery package on 27 May - €1.1tn.

The rebates will be maintained for Denmark, Germany, the Netherlands, Austria and Sweden in real terms on the basis of 2020 and in a lump sum.

On the recovery fund, it is proposed that the Commission will be empowered to borrow up to €750bn through an own resource decision. Charles Michel specified that this is an exceptional and one-off tool for an exceptional situation. These funds may be used for back-to-back loans and for expenditure channelled through MFF programmes.

He also projected the balance between the loans, guaranties and grants to be preserved, in order to avoid overburdening EU countries with high levels of debt.

He maintained his February proposal that sanctions on funds should be adopted by Council with Qualified Majority Vote, also pointing out the Rule of Law monitoring that is under preparation by the Commission.

 

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