EU leaders will try to strike a deal on Europe’s financial response to the coronavirus pandemic on Monday afternoon following a fraught weekend of talks in which they argued over the size of a recovery fund for the bloc.
Overnight negotiations broke up at 6am on Monday after Charles Michel, president of the European Council, floated a new figure of €390bn in grants for stricken countries. This was lower than proposals going into the summit but higher than earlier demands from an alliance of “frugal” nations including the Netherlands.
Diplomats said the new grants figure represented a breakthrough in marathon four-day talks that have been beset by divisions. Leaving the summit, Austria’s chancellor Sebastian Kurz, one of the advocates for a smaller fund, said he was “very happy” with the result after a day of “tough negotiations”.
The euro hit a four-month high against the dollar after EU leaders appeared to edge closer to an agreement. The euro strengthened by 0.3 per cent to $1.146, its highest level against the dollar since early March. Against sterling, the euro jumped 0.53 per cent to 91.36p. European equities indices were unmoved, however. The Euro Stoxx index opened 0.1 per cent lower.
The talks will resume at 4pm Brussels time. If a deal is struck on the size of the recovery fund, the focus will shift to a governance mechanism for its disbursement — another divisive topic.
Governments will also need to resolve a disagreement on whether to tie distribution of aid to respect for the rule of law after resistance from Poland and Hungary.
Entering Brussels’ Europa building on Monday morning, German chancellor Angela Merkel said the overnight talks had led to “hope” a deal could be found today.
“These are incredibly tough negotiations. They will now continue. But an extraordinary situation requires extraordinary efforts. So far we’ve done justice to that. And I hope that we can also cover the remaining distance, though it won’t be easy,” she said.
Leaders have been locked in talks since Friday morning as they try to forge a common EU response to the worst economic crisis since the bloc’s inception. Not only are they attempting to seal a deal authorising the European Commission to borrow unprecedented sums to seed the recovery fund, they are also attempting to settle the EU’s upcoming €1tn seven-year budget.
France’s president Emmanuel Macron said there was a “spirit of compromise” in the negotiations but warned the agreement had not been settled yet. “I remain extremely cautious,” he told reporters, pointing out that important elements such as respect for climate targets and the rule of law had still to be discussed. He added that a failure to agree would risk a revival of the arguments at “harder moments” and at a higher cost.
The main sticking point over the weekend had been the level of non-repayable grants that the recovery fund would be permitted to give hard-pressed member states.
On Sunday, the leaders of Austria, Denmark, the Netherlands and Sweden said they wanted to scale back proposed grants to €350bn, coupled with another €350bn of loans, in a total recovery package worth €700bn.
The offer, which was conditional on rebates to their EU budget contributions, was backed by Finland but received a frosty response from nations hardest hit by the pandemic. During the summit dinner, Mr Macron thumped the summit table and railed against the frugal countries and compared their strategy to Britain’s ill-fated demands for a smaller EU budget under former prime minister David Cameron.
Italian prime minister Giuseppe Conte said failure to strike a deal would lead to the “destruction of Europe’s single market”, according to diplomats.
The offer from frugal leaders represented a change from their pre-summit position that no grants should be distributed under the recovery fund. But it was still a substantial cut from draft proposals going into the meeting. France, Germany, Spain and Italy had pushed to keep the grants ringfenced at no less than €400bn — a figure that was itself shy of the €500bn originally advocated by Berlin and Paris in May.
Mr Michel is expected to table a fresh negotiating blueprint on Monday, including the new €390bn figure alongside proposals for budget rebates for the frugal states and Germany. Leaving the summit on Monday morning, Dutch prime minister Mark Rutte said the talks were “back on track”. “We are still working. We have made progress but are not there yet,” he told journalists on his way back to his hotel.
Leaders will also need to agree on how to police the recovery fund after Mr Rutte insisted on the right to veto grant payments if countries failed to stick to their reform promises. The issue sparked fierce resistance from Italy over the weekend. Diplomats said the dispute over governance would probably be solved once the level of grants was agreed.
Officials said they were also braced for sensitive talks about how to connect the disbursement of funds with the rule of law after Hungarian premier Viktor Orban threatened to veto a compromise that tied distribution of aid to respect for EU fundamental principles.
Budapest has demanded that any potential sanctions to suspend cash payments would need the unanimous support of all governments — a stance rejected by western countries such as the Netherlands. Mr Orban on Sunday accused Mr Rutte of “hating” him and Hungary.
Mr Orban’s stance has been backed by Poland, which joined Hungary in rejecting a draft plan that would require a qualified majority of member states to back potential cash sanctions.
One diplomat said Hungary and Poland’s position was designed to extract more money as part of a final compromise.
Additional reporting from Michael Peel in Brussels and Guy Chazan in Berlin