The EU’s recovery fund and the future of Europe are at stake

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European Council President Charles Michel presented a new proposal on Monday, hoping to reach agreement on a landmark initiative to fund Europe’s recovery from the coronavirus crisis.

The European Union is grappling with a savage recession triggered by the pandemic, and hardest-hit countries like Italy and Spain are in urgent need of new economic aid worth hundreds of billions of dollars. dollars.

But the deal has so far been thwarted by deep divisions over the overall size of the recovery fund, the amount of aid to be given in the form of grants or loans, and the conditions attached to it.

At the center of the discussions is a proposal for the European Commission to raise 750 billion euros ($ 859 billion) from financial markets on behalf of all EU states. Under the original plan, 500 billion euros ($ 573 billion) were to be distributed to countries in the form of grants, while 250 billion ($ 286 billion) would be offered in the form of loans.

Michel’s proposal revises the breakdown of the recovery fund to 390 billion euros ($ 446 billion) in grants and 360 billion ($ 412 billion) in loans, shows a document seen by CNN.The size of the subsidies was hotly contested at the summit. The so-called “four frugal” countries – the Netherlands, Denmark, Austria and Sweden – had opposed the granting of 500 billion euros in grants, fearing that their country would indebted to finance the spending from other countries.

There had been bitter disputes over how the grants would be governed. The Netherlands had led member states to have the power to block or withdraw payments if they felt a country was in breach of the conditions attached to the subsidies.

In Monday’s proposal, a relaxation of the language would see the Commission and EU finance ministers assess whether a country has been negligent in complying with the rules. If at any point an individual Member State felt that the rules were being broken, the Commission would then “propose appropriate and proportionate measures”, which “would have to be approved by the Council by qualified majority”.

Some funding barriers have all been removed together. Michel removed the condition that only countries that have committed to achieving climate neutrality by 2050 could access parts of the fund – a request from Poland and the Czech Republic.

The size of the EU’s core budget – called the multiannual financial framework (MFF) – remains unchanged at 1.074 trillion euros ($ 1.23 trillion), but the allocations with the MFF have been changed, resulting in exceptional benefits for certain countries.

To boost competitiveness, growth and job creation in some of the less developed regions of the EU, plans include an additional EUR 1 billion for the Czech Republic, EUR 300 million for Slovenia, EUR 200 million euros for Belgium and 100 million euros for Cyprus. The sparsely populated regions of northern Finland will be allocated an additional EUR 100 million.

Negotiations over the massive seven-year MFF have been stalled for months and the process, EU diplomats say, is eight or nine months behind.

Leaders will now continue to debate the proposal in the hope of reaching agreement on both the stimulus fund and the MFF. The European Parliament will need to review and adopt the plan before it can be ratified in each of the 27 EU member states.

“The European future”

French President Emmanuel Macron momentarily lost his temper during late-night talks, French officials told CNN. There was a “hard time last night,” they said.

Speaking on Sunday, Luxembourg Prime Minister Xavier Bettel said he had “rarely seen – in seven years – such diametrically opposed positions on many points” within the European Council of EU leaders.

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If leaders fail to come to an agreement, there is a risk of a two-speed economic recovery, with richer northern European states rebounding faster than ailing Italy and Spain. This could ignite political tensions within the bloc which some experts believe could pose an existential threat to the European Union.

Council President Michel outlined what was at stake at the start of Friday’s summit. Getting an agreement was not just about money, it was about people, about the European future, about our unity, ”he said.

The European Commission said earlier this month that it expects the EU economy to shrink 8.3% in 2020, far worse than the 7.4% drop predicted ago. two months.

European Central Bank President Christine Lagarde said last week that “an ambitious and coordinated fiscal position remains critical,” and the ECB assumes a major deal will be adopted. This, she said, must happen “quickly”.

Before the adjournment of the EU summit after overnight talks, a compromise was proposed that would reduce the proportion of subsidies to around 50% of the fund, or 375 billion euros ($ 429 billion).

Speaking to reporters early Monday, Dutch Prime Minister Mark Rutte said Michel was working on a new compromise proposal. “We’re not there yet, things could still fall apart. But it seems a little more optimistic than last night when I thought it was over, ”said Rutte.

German Chancellor Angela Merkel said on Monday that EU leaders had found a “framework” for a possible deal.

“This is progress – and it gives us hope that there may be an agreement today or at least that an agreement is possible,” Merkel told reporters.

This sentiment boosted markets early Monday, with the euro hitting its highest level against the dollar since early 2019, rising 0.3% to $ 1.15. It has since been reduced to $ 1.14.

The EU Senior Leaders’ Meeting is the first major in-person gathering of world leaders since the start of the pandemic.

– Julia Horowitz, Emma Reynolds, Chris Liakos, Rosanne Roobeek, Pierre Bairin, Fred Pleitgen and Nadine Schmidt contributed reporting.

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