The European Commission will borrow the money in the financial markets and distribute it under half (€ 390 billion euros ($ 446 billion)) as grants to the most affected EU states, with the rest to be provided as loans. Leaders also agreed on a new EU budget of almost € 1.1 trillion ($ 1.3 trillion) for 2021-2027, creating a combined spending power of approximately € 1.8 trillion ($ 2 trillion).
“It is an ambitious and complete package that combines the classic [budget] with an extraordinary recovery effort aimed at addressing the effects of an unprecedented crisis in the best interest of the EU, “EU leaders said in a joint statement.
“We did it! Europe is strong. Europe is united,” European Council President Charles Michel said at a press conference on Tuesday. “This is a good deal, this is a strong deal, and most importantly, this is the right deal for Europe right now.”
Michel said it was the first time that members of the European Union “jointly enforced our economies against the crisis.”
The European Commission said earlier this month that it expects the EU economy to shrink 8.3% in 2020, considerably worse than the 7.4% drop predicted two months ago.
Before Tuesday, the deal had been thwarted by deep divisions over the overall size of the recovery fund, the mix of grants and loans, and the conditions to be linked to relief.
Deal details
There had been bitter disputes over some of the terms of the agreement in the past few days. The deal came just hours after Michel presented a new proposal to political leaders on Monday.
The original proposal from the European Commission was to distribute € 500 billion ($ 573 billion) through grants, while € 250 billion ($ 286 billion) would have been offered as loans. But the volume of subsidies had been hotly contested during the summit. The so-called “Frugal Four” countries – the Netherlands, Denmark, Austria and Sweden – were concerned that this would burden their countries with debts to finance the spending of other governments.
The new agreement means that the European Union will become a major borrower on world financial markets for the first time. He plans to pay the money by 2058.
He also said he would consider updating an existing emissions trading program, which limits the amount of greenhouse gases that companies can emit without facing fines. According to the Commission, it could extend the restrictions to the aviation and maritime industries.
How it happened
The EU senior leadership meeting was the first major in-person meeting of world leaders since the pandemic began, and the negotiations lasted four days and nights.
It was “more than 90 hours, but it was worth it,” European Commission President Ursula von der Leyen told reporters on Tuesday.
French President Emmanuel Macron praised the signing of the agreement as a “historic day for Europe”.
“Think about the distance we have covered. Since February, we have not been able to reach any kind of agreement,” he said. “Now we have the [budget], we have the recovery fund and this represents almost 2% of the EU’s GDP “.
Macron praised the leaders’ efforts to help “almost double the EU budget for the coming years,” while German Chancellor Angela Merkel stated that “we have laid the financial foundation for the European Union for the next seven years. ”
Holger Schmieding, chief economist at Berenberg, called the deal “a big step forward for Europe.”
“With the greatest effort of cross-border solidarity, the EU is sending a strong signal of internal cohesion,” he wrote in a note on Tuesday. “In the short term, the confidence effect may matter even more than the money itself.”
– Chris Liakos, Julia Horowitz and Mark Thompson contributed to this report.
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