WARSAW / ROME (Reuters) – A clash between EU leaders at a summit in Brussels on Saturday threatened to derail plans for a massive stimulus fund to bring their economies hit by the coronavirus to life.
“We are at a dead end now. It is more complex than expected, “Italian Prime Minister Giuseppe Conte said in a video on Facebook as the 27 leaders of the European Union approached the end of a second day of talks.” There are many problems that remain unsolved. ” .
The bloc executive’s budget commissioner reminded the leaders, who wore masks and kept away from each other, that COVID-19 was still among them and that they had to act.
“Just a solemn reminder: The Corona crisis is not over: infections are on the rise in many countries,” Johannes Hahn tweeted. “It is time to reach an agreement that allows us to provide the urgently needed support for our citizens and economies!”
With the pandemic facing Europe as its worst economic shock since World War II, leaders gathered on Friday to haggle over a proposed € 750 billion ($ 856 billion) recovery fund and an EU budget to 2021-27 of more than 1 billion euros.
But a group of wealthy and fiscally “frugal” northern states led by the Netherlands have blocked progress at the EU’s first face-to-face summit since spring blockades across the continent.
They favor repayable loans instead of free donations for the most affected indebted economies, mainly on the edge of the Mediterranean, and they want to control how the funds are spent.
Hopes for a deal grew earlier on Saturday when the summit’s president, European Council President Charles Michel, proposed revisions to the overall package that were designed to allay Dutch concerns.
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Under the new proposals, the portion of the grants in the recovery fund would be reduced to € 450 billion from € 500 billion and an ’emergency brake’ would be added to the disbursement.
But he hopes this is enough for an agreement to quickly fade away.
“The probability of an agreement being reached tonight is very small. Very thin, ”said a diplomat from an EU member state.
The diplomat said the “frugal” were pushing for deeper cuts to the fund and greater discounts for net taxpayers in the EU’s central budget, among other demands.
Other countries had their own demands in the negotiations intersecting different regional and economic priorities, calling into question an unprecedented act of solidarity for the EU under which the European Commission would borrow billions of euros in capital markets on behalf of all of them.
The EU is already grappling with the long-running saga of Britain’s exit from the bloc and has been hit by past crises, from the 2008 financial crisis to migration disputes.
Another economic shock could expose him to more Eurosceptic, nationalist and protectionist forces, and weaken his position against China, the United States or Russia.
The exact size of the EU’s long-term budget and to what extent to use payments as leverage for reforms, or whether to withhold money from countries that do not meet democratic standards, has yet to be resolved on Saturday night.
Hungary, backed by its Eurosceptic and nationalist ally Poland, has threatened to veto the entire package over a new mechanism planned to freeze countries that ignore democratic principles.
As leaders clustered together in groups to find the way forward, an EU diplomat said Michel would propose another revision of the package before meeting for dinner.
Reports by Gabriela Baczynska and Francesca Landini; Additional reports by Francesco Guarascio in Brussels and Andreas Sytas in Vilnius; Written by John Chalmers; Editing by Hugh Lawson
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