EU leaders struggle with ‘mission impossible’ at stalled recovery summit

BRUSSELS (Reuters) – EU leaders found themselves at a standstill on Monday after three days of haggling over a plan to revive economies strangled by the COVID-19 pandemic, but the president of his summit nearly set a record he urged them to give one last push on “mission impossible”.

Charles Michel reminded the 27 leaders of the European Union that more than 600,000 people had died as a result of the coronavirus worldwide, and that it was up to them to be together in the face of an unprecedented crisis.

“I hope we reach an agreement and that the headline … tomorrow is that the EU has accomplished the impossible mission,” said the President of the European Council at his third consecutive dinner at the Brussels conference center. “That is my sincere wish … after three days of non-stop work.”

Leaders disagree on how to divide a vast recovery fund designed to help lift Europe out of its deepest recession since World War II, and what measures to assign to countries that would benefit.

The meeting adjourned on Monday until 1400 CET (1200 GMT).

Diplomats said the leaders can leave the summit and try a deal again next month, but as they negotiated in the early hours of Monday, a deal still seemed possible.

On the table is a package of 1.8 trillion euros ($ 2.06 trillion) for the next long-term budget and EU recovery fund.

The executive European Commission of the EU would raise the 750 billion euros proposed for the recovery fund on behalf of all of them in the capital markets, which would be a historic step towards greater integration, and would then be channeled mainly to countries most affected Mediterranean.

BETTER AMBITIO THAN HURRIED

European Central Bank (ECB) President Christine Lagarde said it would be better for leaders to agree on an “ambitious” aid package than to have a quick deal at any cost.

“Ideally, the leaders’ agreement should be ambitious in terms of package size and composition … even if it takes a little longer,” he told Reuters.

Lagarde’s comments suggested she was relaxed about the possibility of an adverse reaction in the financial markets if the summit fails, especially since the ECB has a war chest of more than 1 trillion euros to buy public debt.

News of the EU stagnation had little impact on the euro in early Asian trade, and analysts said markets were still hoping for a deal. [MKTS/GLOB]

“I think the expectations were that we weren’t going to come to an agreement at this meeting anyway, but we needed enough to believe that one would come in August or September,” said Chris Weston, chief research officer for Pepperstone Brokerage in Melbourne, Australia.

NORTH V SOUTH

A group of wealthy “frugal” states in northern Europe lobbied for a smaller recovery fund at the summit and tried to limit how payments are divided between grants and repayable loans.

The tense talks, although still a bit shorter than an EU summit in the French city of Nice 20 years ago, highlighted the chasm between the EU’s north and south.

Italian Prime Minister Giuseppe Conte accused the Netherlands and its allies – Austria, Sweden, Denmark and Finland – of “blackmail”.

Dutch Prime Minister Mark Rutte’s position reflects political realities in his country, where voters resent the Netherlands being proportionally among the largest net contributors to the EU budget.

He and his conservative VVD party face a strong challenge from far-right Eurosceptic parties in next March’s elections.

An attempt to compromise failed on Sunday. The north rejected an agreement that provided for 400 billion euros in subsidies, below the proposed 500 billion euros, and said it considered that 350 billion euros was the maximum.

Since then, discussions about the subsidies have slowed, and Michel said they would be based on € 390 billion combined with smaller discounts.

There were also differences over a proposed new rule of law mechanism that could freeze funds for countries that do not respect democratic principles. Hungary, backed by Poland, threatened to veto the package if its disbursement depended on conditions of compliance with the rule of law.

For some, the summit was a critical moment during almost 70 years of European integration, and failure to reach an agreement could make financial markets nervous and cast doubt on the bloc’s future.