EU leaders fight to break deadlock on recovery fund

EU leaders fight to break deadlock on recovery fund

EU chiefs were locked in discussions over a plan to break the deadlock over Europe’s proposed €750bn response to the coronavirus pandemic after a night of acrimonious talks among leaders in Brussels. 

European Council president Charles Michel published revised plans on Saturday morning that would trim by €50bn the overall amount of grants that would be doled out under the economic recovery package. But he also reinforced a core fund that capitals including Rome and Madrid are most anxious to protect, as he sought to unblock tense negotiations in Brussels. 

A group of 11 key players including the leaders of Germany, France, the Netherlands, Spain and Italy huddled in face-to-face talks to hammer out the details after Mr Michel’s gambit kicked off the second day of summit negotiations.

Diplomats said discussions were showing greater momentum after foundering badly on Friday night over Dutch demands for tough supervision of how the recovery money is spent.

Mark Rutte, the Dutch prime minister, has insisted on a right to unilaterally veto payments to stricken countries if they do not meet reform demands. 

The new plan, drafted overnight, offers compromise wording in an attempt to address Mr Rutte’s concerns, offering a single nation the ability to object to payouts to a member state — but only if they do so within a three-day window. The dispute would then need to be resolved by EU finance ministers or referred up to leaders if it could not be concluded. While the proposal leaves key details unresolved,

Dutch diplomats said the mechanism was a “step in the right direction” and would help Mr Rutte sell a final compromise to his national parliament.

However, southern capitals will need to be convinced that the process would not cause heavy delays to payouts of funds vital to their economic recovery process.

The new “negotiating box” from Mr Michel is an attempt to prevent leaders’ first face-to-face meeting since February ending in failure, with the credibility of the bloc’s collective response to Covid-19 at stake. 

Friday’s talks broke up after 13 hours of negotiations that laid bare division over the rules for doling out hundreds of billions of euros that the EU would borrow on the capitals markets. 

Mr Michel’s negotiating box proposes keeping the overall size of the EU’s borrowing plan at €750bn, but shifts the balance between loans and grants.

The cuts to the grants component have been made to programmes that member states had previously signalled that they were willing to sacrifice, including a proposed recapitalisation tool for struggling companies and an initiative to stimulate private investment. 

The key area for member states such as Italy, Spain and Poland is the so-called Recovery and Resilience Facility, a new scheme that would distribute funding to individual member states. The grants available from this programme have been lifted from €310bn to €325bn in Mr Michel’s new proposal.

Frugal countries such as the Netherlands, Austria, Denmark and Sweden, also get a modest increase in their budget rebate to convince them to sign up to a deal. However, the quartet were still pushing for deeper cuts to the overall size of the package on Saturday afternoon.

One EU diplomat said the proposal “offered something to everyone” and was a “getting closer to something we can discuss”.

Officials said that a new draft deal could be thrashed out on Saturday afternoon to further bridge differences and close in on a final agreement — although hours of talks probably lay ahead.

Among the issues to be resolved is a dispute over how to tie recovery money to respect for the rule of law. Hungary’s illiberal premier, Viktor Orban, has threatened to veto a deal that makes respect for fundamental values a precondition of the recovery fund — a position supported by

Poland’s prime minister, Mateusz Morawiecki. Western European capitals are demanding tougher cash sanctions for member states such as Poland and Hungary that are accused of undermining the independent judiciary and the press.

The first day of talks on Friday dissolved in an ill-tempered dinner as leaders rounded on Mr Rutte over his intransigence on the veto. 

The mood was summed up by a heated exchange over dinner when Boyko Borisov, the Bulgarian leader, accused Mr Rutte of wanting to be “the police of Europe” by handing himself the right to decide if countries’ national reform plans were ambitious enough to justify EU financial support. 

On Saturday morning Mr Borisov struck a more conciliatory tone, suggesting a deal could be done and saying it was natural that member states that contributed the most to the EU’s funding had an interest in knowing how the money would be spent. 

German chancellor Angela Merkel, who holds the EU’s rotating presidency, is anxious to strike a deal on the recovery fund this month before the August break. The package is a hugely complex one to successfully negotiate.

Not only do leaders need to settle the size, governance and conditions attached to the recovery fund, but the entire process is linked to the EU’s regular seven-year budget, which runs from 2021 to 2027.

Under the recovery fund component, the EU will be moving into uncharted territory by borrowing on a large scale on the capital markets. 

Given the unprecedented nature of the proposals, Mr Rutte has said that the moves to give countries unprecedented grants should come with a greater degree of surveillance than ordinary loans.

Leaders of the countries that have borne the brunt of the pandemic have bristled at the idea of being subject to “Troika-style” monitoring of the kind that was imposed during the eurozone sovereign debt crisis. 

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