BRUSSELS – European Union leaders met on Friday to begin crafting a giant aid package to help their economies recover from the coronavirus calamity. But even before they started, the haggling had exposed fundamental differences between member states that need to be refined in the coming days for them to succeed in saving Europe’s economy.
The main problem is how much freedom to give those who receive the aid to spend it however they want. Since much of the money is guaranteed by the richest states in the north, some of them demand that conditions be imposed to drive economic, political, environmental and social reforms.
Chancellor Angela Merkel of Germany, whose nation recently assumed the rotating presidency of the European Union and who has led efforts to push the package, previously seemed optimistic. But she was cautious when it arrived on Friday about prospects for a deal this weekend.
“It would be desirable, but we also have to face reality,” he said. “I expect very difficult negotiations.”
It was the first time that EU leaders held a face-to-face meeting since the outbreak of the pandemic that has altered many of their plans, and officials hoped that being together would help them advance the engagement faster.
The images of their greetings showed them wearing masks and greeting each other with soft bows and bumps on their elbows. The leaders of Poland, Hungary, the Czech Republic and Slovakia, who have most challenged the bloc’s liberal and democratic principles, broke ranks and posed together unmasked.
The logistics surrounding the organization of the meeting at the time of Covid-19 was cumbersome. Special markings were placed on the floor to indicate the distance and preferred flow of officials in the building.
The leaders gathered in the largest room of the new Europe building. Fits 300 people. Only heads of 27 governments and leaders of EU institutions were allowed entry. Previous guidance had indicated that close advisers may occasionally visit leaders. But the usual environment of more than a dozen per leader is a thing of the past: they were limited to five advisers each.
The bonhomie show disguised real internal political pressures and long-standing cultural differences that have slowed the search for a quick deal headed by Mrs Merkel together with the President of France, Emmanuel Macron.
Family trenches are being dug. Some Northern European countries led by the Netherlands want a radical liberalization of the economies of the southern countries and a reform of their public finances in exchange for stimulus.
Most Western European members want Hungary, Poland and other Eastern members to adhere to environmental goals, to stop undermining the rule of law and to end attacks on immigrants and minority groups, such as their Jewish citizens and LGBT, if they want to take advantage of the EU funds.
The leaders will try to agree on financing of 1.8 trillion euros, around $ 2 trillion, of which just over € 1.1 trillion will be allocated to the bloc’s budget for the next seven years, the normal way to establish the EU spending, and € 750 billion will be set aside for a pandemic recovery fund.
The recovery component of the package being debated includes a bold proposal that will allow the EU’s administrative branch, the European Commission, to borrow on the financial markets on a large scale and to offer part of the funds it raises free of charge. of grants for needy members.
In practice, that will mean that the most solvent EU nations will take out loans to finance recoveries from countries that would otherwise face too high borrowing costs.
Combined with a program by the European Central Bank to buy the debt of the member states at low interest rates to allow them to continue financing stimulus programs, the proposed € 750 billion plan would be of great help to those most in need, especially in the southern Europe, where structurally weak economies were hit by the coronavirus.
Economists predict an unseen recession outside of wartime in the region. Italy, Spain and France, the third, fourth and second largest economies in the bloc, will be the most affected, registering contractions of around 10 percent each year.
Greece and other smaller economies that were recovering from the bloc’s last recession will also be seriously affected by the recession. But the heavy debt burden in many of these nations makes them reluctant to borrow further, and their budgets are not enough to self-finance their recoveries, leading them to ask for help from the European Union.
Wealthier countries like Germany, which has played a catalytic role in forging compromises, will benefit from a rapid and steady recovery in their weaker southern neighbors. They share a currency, the euro and a common market for their goods and services.
Germany’s shifting role, from the leader of the conservative wealthy north to the advocate of compromise, could be the deciding factor in this new battle for the European Union.
“Germany has made a visible differentiation of its position,” said Maria Demertzis, economist and deputy director of the Bruegel research institute, based in Brussels. “She has not forgotten the problems of conditionality and reforms, but, for the moment, she is rearranging her priorities.”
This leaves the northern nations in charge of the Dutch, who demand a role in scrutinizing how their peers spend money, which Italy and others consider an unacceptable intrusion into their businesses.
Instead, they propose that the European Commission act as a fair arbiter of whether countries’ stimulus plans are wise and well designed to help them overcome this crisis, while also addressing structural weaknesses and improving their public finances.
Mark Rutte, the Dutch prime minister, who faces a closed election in less than a year, wants his Parliament to have something to say about the disbursement of funds, an opinion that no other nation shares.
“I estimate the chance that we will reach an agreement this weekend is less than 50 percent,” Rutte said when he arrived at the meeting in Brussels on Friday morning, pouring cold water in hopes of a quick agreement this weekend. of week.
His insistence on strict conditions for aid has affected members of the south in the wrong direction, generating tensions in the bloc that will surely develop in the negotiations.
“To be fair, what the Dutch say is not wrong, when they raise big debt problems, or point out that countries need to reform,” Demertzis said. “But the question is the moment: is this the conversation you want to have right now? Diplomacy is not correct, the substance is. “
The leaders are scheduled to stay in talks until Saturday night and it is not certain that they will reach an agreement. Rather, they may continue their talks on Sunday and even meet later this month, but there is consensus that they should have a deal before they break the summer in August.
And while the proposed package includes mechanisms that would compel countries to adhere to ambitious environmental goals and push them to improve the way they treat their rule of law and minorities in their home countries, some eastern members are opposed.
“Linking those two areas, those two completely different legal areas, creates a huge threat of legal security,” said Prime Minister Mateusz Morawiecki of Poland when he arrived at the meeting. “We cannot agree with that.”
In the run-up to the meeting, its Allied Prime Minister Viktor Orban of Hungary prepared for a similar battle, getting his Parliament to vote on a resolution that states that EU procedures against Hungary for violations of the rule of law must closed before the new budget is adopted, and such funding should not be conditional on the requirements of the rule of law.
The aid package on the table will allow the European Commission to develop new muscles that will make it appear more than ever to a federal government. But many members view the institution with suspicion because it is a vast bureaucracy with little democratic responsibility.
In the past, the commission used the EU budget to issue bonds, but never on the proposed scale, and never made those loans free of charge to its members. The proposals underline that this will be a unique exercise to help with a disastrous economic recession.
The proposal will also allow the commission to find ways to raise its own funds, for example through a carbon tax, digital services and other cross-border activities. If you go ahead, the commission will manage the expenses and income of the EU’s collective balance sheet, and will be given the authority to collect taxes, a privilege generally reserved for elected governments.
“We need to see what comes out of the meetings, but if this happens, it is in the direction of the countries suspending a grant: this is an incredible step forward,” said Ms. Demertzis. “Everyone talks about this being unique, but as we all know, there is nothing more permanent than temporary measures.”
Monika Pronczuk contributed reporting from Brussels and Ben Novak contributed reporting from Budapest.
