EU “Moment of Truth” as Leaders Seek Covid Financing Deal

Image copyright
EPA

EU leaders meet at their first face-to-face summit since the coronavirus crisis, with low expectations of a deal on a € 750 billion (£ 670 billion) post-Covid stimulus package.

Leaders wearing masks, which were met with elbow blows and not handshakes, must also agree to a seven-year budget of 1.07 billion euros.

French President Emmanuel Macron said it was a “moment of truth” for Europe.

There are divisions among leaders over whether the post-Covid package should be awarded as grants or loans.

Macron and German Chancellor Angela Merkel want grants to mainly finance the fund. Four northern nations insist on loans.

Upon arriving at the talks in Brussels, Ms Merkel said “the differences are very very large and I cannot say whether we will find a solution this time.” It would be desirable, she said, but people had to be realistic.

Other leaders gave birthday gifts to her and Portuguese Prime Minister Antonio Costa, however, the kind scenes inside the summit come after weeks of disputes over the rescue package.

Image copyright
fake pictures

The meeting will continue on Saturday, but EU leaders may need more time to reach an agreement.

“What is at stake could not be greater,” said the president of the European Commission, Ursula von der Leyen, before the meeting. “Everyone is watching us.”

Greek Prime Minister Kyriakos Mitsotakis said that no one should lose sight of the big picture: “We are facing the biggest economic depression since World War II.”

But Dutch Prime Minister Mark Rutte, whose country is part of the so-called northern states “Frugal Four,” said he “put the chances of reaching an agreement this weekend at less than 50%.”

Why is the fund so complicated?

Southern states, including Italy and Spain, want an urgent decision “not weakened by lesser commitment”, in the words of Italian Prime Minister Giuseppe Conte. They need to revive economies hit by a devastating pandemic that claimed 35,000 lives in Italy and another 28,400 in Spain.

The Frankfurt-based European Central Bank has already forecast an 8.7% drop in the eurozone economy this year due to the pandemic. But economies that recently pulled out of a financial crisis want subsidies instead of taking on more debt.

Image copyright
EPA

The recovery plan, backed by France and Germany, for € 500 billion in grants and subsidies and € 250 billion in loans, is being resisted by several “frugal” countries in northern Europe, led by the Netherlands.

The EU recovery fund is already controversial, as the money would be borrowed from the financial markets, to be returned sometime after 2027. It is made up of several different instruments, but most of it would go towards supporting the green and digital investment and reform. About 30% of the financing could be linked to climate projects.

Frugal states, which include Austria, Sweden, Denmark and, to some extent, Finland, want some control over how the money is delivered. Southern states say that will delay the process.

There is also pressure to reduce the size of the € 750 billion fund, so the solvency instrument devised to revive companies after closure could be under threat.

But Italian Economy Minister Roberto Gualtieri told Corriere’s website that Rome “will fight hard not to change” the structure of the recovery fund.

Some of Central Europe’s leaders also wanted rebates to be on the table – the money returned to the wealthiest EU states that pay more out of budget than they get.

Why the rush?

Leaders have crossed Europe ahead of the summit in an attempt to find a solution. When visiting Sweden, the Spanish Pedro Sánchez warned: “If we delay the response, we delay the recovery and the crisis could worsen.”

• Great Choices Facing EU Leaders in Covid Recovery Cash

European Central Bank Director Christine Lagarde also urged the EU27 to move quickly on an “ambitious package”, warning that uncertainty remains high in the speed and scale of the economic rebound.

If the grant or loan package is agreed, France could commit € 39 billion of EU funds to its own € 100 billion national recovery plan. Prime Minister Jean Castex said this week that € 20 billion would go to insulating buildings and turning cities into bicycles.

A group of 150 scientists and celebrities joined climate activist Greta Thunberg on Thursday to sign an open letter urging EU leaders to end “all investments in fossil fuel exploration and extraction.”

As economic activity in the eurozone recovers and blockades are lifted, there is fear of a second increase.

The ECB has confirmed that its emergency program to purchase bonds worth 1.35 trillion euros is on track to last until June of next year, to help governments, banks and companies.

Are the Dutch out of action?

One of the main problems for EU leaders is whether any country can have a veto on the money that is given to a member state for recovery purposes.

Before the summit, a French official said the Netherlands was the only one of the so-called frugal states that sought strict control over the conditions for paying the funds.

Certainly Dutch Prime Minister Mark Rutte insists on pension, welfare and tax reform in exchange for funding and wants assurances that the money goes to modernize infrastructure and green investment.

“I will only accept subsidies if the reforms are carried out,” he said in an interview with the public broadcaster NOS.

But Finland also wants conditions tied to EU funding, both from the recovery boat and the broader EU budget for 2021-27.

The task facing EU leaders is to agree not only on the size and terms of the recovery fund, but also on the overall EU budget.

And Viktor Orban of Hungary has threatened to derail both the fund and the budget if any payment is linked to a member state’s rule of law.

His ruling Fidesz party has been suspended by the large bloc of the European People’s Party for cracking down on the media and civil society.

“We could veto him because he needs a unanimous decision. Hungary could say no,” Orban said last week.