Divided EU leaders face challenges on Covid-19 stimulus package
European Union leaders found that a quick deal on the bloc’s future long-term budget and a multibillion-euro post-pandemic recovery plan remained beyond their reach Friday as the coronavirus ravages their economies.
Following a four-hour video summit aimed at paving the way for a compromise this summer, there was common ground on the need for a quick response but divergences persisted among the leaders of EU member nations.
"It is essential to take a decision as soon as possible," EU Council President Charles Michel said, announcing he plans to call an in-person summit for the leaders of the 27-nation bloc for mid-July.
European Commission President Ursula von der Leyen, the head of the EU's executive arm, said she hopes a deal can be secured before the EU closes for an August summer holiday.
“Leaders unanimously agreed that the severity of this crisis justifies an ambitious common response, one that combines solidarity, investment and reforms," von der Leyen said. “Many leaders stressed that we must do everything in our power to reach an agreement soon in the European Council before the summer break."
Devised to help member states’ economies cushion the impact of the coronavirus, the package is far from being unanimously welcomed. Von der Leyen said differences remain on such topics as the size of the package, how the money will be dispatched and the balance between grants and loans in the recovery fund.
“We don’t underestimate the difficulties,” Michel said.
To tackle the economic crisis, von der Leyen has proposed a revised long-term budget for the 2021-2027 period that would represent around 1.1% of European GDP after the U.K.’s departure, coupled with the temporary reinforcement of the 750 billion euros set aside to combat the virus. The whole package represents a huge €1.85 trillion stimulus for the bloc's struggling economies.
A blend of debt mutualization, grants and loans, the aid plan has failed to gain the approval of a group of countries known as the Frugal Four — the Netherlands, Denmark, Austria and Sweden. They oppose issuing too much common debt to support the hardest-hit countries and argue that the money should mainly be handed out in loans instead of grants.
Under the commission’s plans, two-thirds of the recovery fund — a half-trillion euros — would take the form of grants.
The plan is backed by France and Germany, the bloc’s two most powerful countries. With their allies, they need to convince the countries opposed to debt mutualization or increases in the EU budget that grants will benefit the whole bloc.
German Chancellor Angela Merkel said the quartet of frugal countries “once again expressed their skepticism toward grants, though not so specifically, in general form. But the position has not changed there.”
Insisting the 500-billion-euros in grants proposed was a bare minimum, a senior French official nonetheless described progress from discussions that took place in a “studious and quiet atmosphere."
“We weren’t in a spirit of confrontation and tension," said the official, who was not authorized to publicly talk about the meeting and spoke on condition of anonymity. “We've made considerable progress in a few weeks on the issue of the common borrowing. None of the participants is challenging the idea anymore. There is no agreement on an amount, but everyone agrees on this ambitious and exceptional recovery plan. There is work to be done, but it is possible."
Among the divisive topics, the allocation of the money remains problematic. The European Commission proposed basing it on criteria that include population size, gross domestic product per capita and unemployment figures during 2015-2019.
Merkel and Czech Prime Minister Andrej Babis questioned whether the criteria reflect the economic toll of the coronavirus pandemic.
“We should try, as far as possible, to put a figure on the economic damage that has been done now by the pandemic, although of course it is barely possible to do that very substantially because it is so current," Merkel said. "But as far as it is possible, we should do it.”
To fund the plan, the European Commission proposed borrowing money on financial markets. The European Commission has a triple A credit rating, which would give it favorable loan terms. Repayments would not begin before 2028, with the full amount due after 30 years.
To facilitate the reimbursement, several member states pushed for the rapid development of new EU funding sources that could take the form of taxes on carbon or single-use plastic. Such revenues would make the EU budget less dependent on national contributions from member states, which are reluctant to pay more.
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